Questions and answers

You all had such great questions at our last seminar. So here they for you to go over again.

FAQs at Brokers seminar

1. What kind of program do you use to assess your clients?
2. Do you do low-docs?
3. How can you get the first home owner’s grant when the owner still has a debt on the property?
4. What happens if the buyer cannot refinance within the allocated time?
5. What if a buyer defaults during the course of their loan with you?
6. Our biggest concern is about refinancing the clients, because at the end of the day we have to appease the banks. Banks don’t accept private rent as a payment history so why would they accept your system?
7. If you are buying the properties on behalf of the client how many properties can you really sustain?
8. What happens if the house goes down in value and the client either can’t refinance or walks out on the property.
9. I’ve heard some scary stories about people doing Vendor Finance, how are you different from them?
10. I have a client that bought a house 4 years ago in Orange for $200K and is now trying to refinance but the property is only worth $170K now so they can’t refinance. What do you say to that.
11. If someone wants to refinance out quickly (earlier than the agreed option) can they?
12. Where are you based? Does the client come to you or do you go to them?
13. Are the buyer’s payments indexed to interest rate rises?

Q What kind of program do you use to assess your clients?

A We use the same process as the bank uses to qualify a loan. As we hold an Australian Credit licence we have to satisfy ASIC compliance regulations when we assess a client’s suitability for a loan.

Q Do you do low-docs?
A We accept clients who would perhaps not even qualify for a low doc loan. In some cases if the client has the option of going with us or with a low doc loan they would be significantly better off going with us as they do not have to pay entry fees or mortgage insurance and interest rates are lower.
In terms of re-financing our clients we aim to get them to a point where they would qualify for a major bank loan as opposed to a low doc / non-conforming loan.

Q How can you get the first home owner’s grant when the owner still has a debt on the property?
A The state revenue’s office recognises Vendor Finance as a valid sale and therefore will issue the First Home Owner’s grant to the new buyer. The land titles office also recognises vendor finance as a valid sale and the buyer will also get equitable title of the property.

Q What happens if the buyer cannot refinance within the allocated time?
A Firstly we always give clients 1 year longer than we believe that they need to become ‘bank ready’. If at the end of their term they are unable to refinance we give them an extension of time. In their contract there is a clause that entitles them to an extension if they are unable to refinance.

Q What if a buyer defaults during the course of their loan with you?
A We have incentives in place to stop people from defaulting during their loan with us. Firstly it is a requirement that they provide an up to date copy of their credit report every 6 weeks. Also we have a clause in our contract with them that entitles us to raise their interest rate if they should have any new defaults.

Q Our biggest concern is about refinancing the clients, because at the end of the day we have to appease the banks. Banks don’t accept private rent as a payment history so why would they accept your system?
A We do not rely solely on the buyer’s payment history as the only document to appease the banks this simply strengthens their application. There are 6 ways that we improve our client’s case when they go to the bank;
1. If they have defaults we give them time for the defaults to disappear and we also engage a credit repair expert to challenge some of their defaults
2. We allow them the time to save enough deposit to put toward a refinance. Plus we guide them in how much they should save.
3. The buyer has the right to make improvements   to the property so by increasing the value of their home they will have more equity when it comes time to refinance
4. If the market goes up then the buyer will also have more equity in the property when it comes time to refinance. To be conservative we do not rely on an increase in value but have never had a case where there has not been one.
5. The buyer is given time to get their tax records in order.
6. On top of this we present a payment history statement from us as a lender which strengthens their case.

Q If you are buying the properties on behalf of the client how many properties can you really sustain?

A We engage an investor on each property; we have a data base of pre-qualified investors. So there is no limit to the amount of properties we can sustain.

Q What happens if the house goes down in value and the client either can’t refinance or walks out on the property?
A If the client is unable to refinance due to down turned market then they will be given an extension until the market picks up. Property prices do go down some times but history shows that eventually all property goes up if given a long enough period of time.  Even though you can’t predict where the history of the world is going  we believe it is a safe assumption.
In cases of a down turned market the client can also still manufacture growth by improving the property through renovation.
If the client walks away from the property then it is unfortunate for the client but it is not the end of the world for us; we have had some cases that even in a down turned market when a buyer has walked away we have quickly sold it again. Because it doesn’t matter what the market is doing, there are always people who want the opportunity to own their own home.

Have a look at what Gayle Dopeland from www.dollarsatwork4U.com.au has to say about Vendor Finance

Q I’ve heard some scary stories about people doing Vendor Finance, how are you different from them?
A In any industry there are good guys and not so good guys. Are all real estate agents honest? Are all police officers honest?  Are all priests honest?
We have also heard some very scary stories of other vendor financiers and we have taken great lengths to make sure that our systems are different to theirs.
Here are some example of some mistakes other have made and how we are different
a) Selling properties way over market value- Otherwise known as ‘selling today at tomorrow’s price’.

Our view – We do not agree with this philosophy. We have  heard of people buying houses on terms for ridiculous prices. We charge our clients at today’s market price. Generally we use the skills and experience we have developed over time to buy houses under market value and then sell them back to the clients at the fair market value.

b) A company had a savings plan in which people deposited their savings straight into the director’s bank account. The money was spent by the director and he is now facing jail time.

Our view – We also have a savings program but we protect our clients by keeping their funds in a solicitor’s trust account which is protected by 2 million dollars of indemnity insurance. If people do not want their money kept by a solicitor they also have the option of putting funds into a joint bank account with Own Don’t Rent. This requires 2 signatures for a withdrawal (the clients and our directors signature) so there is no chance of their money being compromised.

c) We have also heard of people putting clients into houses where the payment well exceeded the clients’ capacity.

Our view – When we assess a client we comply by ASIC’s credit code regulations so will not put a client into a loan that would be deemed to be unsuitable. (otherwise we risk losing our licence and reputation)

d) We have hear of ‘serial deposit takers’; these are people who put people in houses that they can’t afford, take a deposit from them and when the buyer defaults, the vendor finance provider quickly kicks them out and takes the next persons deposit

Our view – W e do not do this, as stated above we are licenced credit provider and aside from wanting to maintain our license we always aim to act with the upmost integrity. We are very protective of our reputation.

Q I have a client that bought a house 4 years ago in Orange for $200K and is now trying to refinance but the property is only worth $170K now so they can’t refinance. What do you say to that?
A There are a few issues that come up here. It’s hard to speculate what happened in that case as we were not involved but these issues may clear up some worry about how that deal compares to how we deal with our clients;
1. We don’t know how much the property was worth at the time it was sold, if it was 4 years ago it would have been bought in 2007 just before the GFC. So it could be a case that it was bad timing as far as buying a house goes. This issue does not only apply to people who bought under vendor finance, it would apply to anyone who bought in that time and wants to sell/refinance now. What we would recommend is that they wait it out until the market goes up. If they were our client they would be given an extension in time.
2. It may be a case where the vendor finance provider sold to the client for too high a price and the property was bought well over market value. As stated earlier, we don’t do this.
3. These clients could ask the seller to give deposit finance ,  get a bank loan for $170K and the seller will finance the $30K
4. We may be able to assist this particular client if they are now in a situation where they are being forced to refinance but they can’t. Feel free to call us about it.

Q If someone wants to refinance out quickly (earlier than the agreed option) can they?
A Yes. They can refinance at any point during their term, usually with no exist fees (unless they have specifically requested a fixed interest rate).

Q Where are you based? Does the client come to you or do you go to them?
A We are based in Constitution Hill (Near Parramatta). Early next year we will be moving to Croydon Park.  We will go to the client if necessary but in most cases we ask them to come to us, as it shows commitment from their side.

Q Are the buyer’s payments indexed to interest rate rises?

A The client has the option of fixed or variable rates. Just like the bank if they wish to have fixed rates the rates are slightly higher. They also have the option to pay interest only or principal and interest, just like the bank.

Got any questions of your own to add to this list? email me at info@owndontrent.com.au