Australian home loan terms for foreign investors

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Australian home loan terms that you may not know about

If you are considering buying a home or investing in property in Australia, you may come across some unfamiliar terms.

Capital gains tax

Capital gains tax is a type of tax which is charged when you sell a property for a profit, i.e. more than what you paid for it. For example, if you bought a property for $500,000 and you sold it at $600,000, the $100,000 difference will be added to your income and you will be charged tax on it.

If you have owned the property for more than one year, the tax can be discounted by 50%. On the other hand, if you sell a property for less than you paid for it, you cannot use it to offset your income.

As a non resident or temporary resident with an Australian property, it would be advisable to speak to an Australian accountant or financial planner to find out if you can be eligible for this.

Credit score

Credit scoring is a computer generated evaluation which the lender uses to predict the customers willingness to repay the loan. It will take a look at your credit history, asset position, LVR, loan amount, etc.

A higher credit score means that the lender will think that you pose less risk as a borrower and will increase your chance of approval. On the other hand if you have a low credit score it will greatly increase the likeliness of your loan getting declined. In this case you also have the option to find a lender who does not use this method.

As a non resident, credit scoring will be an issue since you will not have a credit history with an Australian bank. Therefore, you should consult an experienced mortgage broker who specialises in non resident loans. If you are living in Australia, you have the option to build up a credit history with the bank to improve your credit score.

FHOG

First Home Owner's Grant is a one-time grant paid to first home buyers by the government. The amount of grant available differs from state to state.

Both non residents and temporary residents are not eligible to receive FHOG.

FIRB

FIRB or the Foreign Investment Review Board is a governmental body which reviews purchase applications made by non-residents or temporary residents. The aim of the FIRB is to process all foreign buyers and regulate it such that any investment is made towards the growth of the Australian economy.

Both non residents and temporary residents need to apply for FIRB approval before purchasing any property in Australia.

Guarantor loan

Guarantor loans are a type of loan where a family member, usually a parent, puts up their property as security against your loan.

This may allow you to borrow up to 105% of the property value, meaning that you will not have to put up a deposit.

Guarantors can only be accepted if the property is located in Australia itself so most non residents and temporary residents are not eligible.

LVR

LVR or Loan to Value Ratio is the percentage of the property value that you wish to borrow.

Australian lenders usually consider loans of more than 80% LVR as risky but if you have a strong financial position, they may allow you to borrow up to 95% LVR without a guarantor.

Non residents are usually only allowed to borrow up to 80% LVR.

Temporary residents such as those on a work visa may be allowed to borrow up to 90% depending on their situation.

Temporary residents can also borrow up to 95% if their partner or spouse is an Australian citizen.

LMI

LMI or Lender Mortgage Insurance is a one-time fee paid to the lender to protect them in case the borrower defaults on their home loan. Usually this is only charged when your LVR is more than 80%.

Most lenders allow you to capitalise your LMI which means that they will lend you money to pay the LMI premium as long as your new LVR is acceptable.

Non resident borrowers are also charged LMI for loans more than 80% LVR. The same applies if you are a temporary resident in Australia.

Negative gearing

Negative gearing is a method where you can offset the cost of owning a property in Australia against any other income in Australia, i.e. if the interest on the loan is more than your rental income, you can use this loss to reduce the tax payable.

As a non resident or temporary resident with an Australian property, it would be advisable to speak to an Australian accountant or financial planner to find out if you can be eligible for this.

VedaScore

VedaScore is a score calculated from your credit file which compares you as a borrower against all Australians. This score usually considers factors such as credit enquiries, type of credit, choice of lenders, shopping patterns, etc.

If you are a non-resident, this will not apply to your mortgage application since only Australian residents can have a VedaScore. If you are a temporary resident, you may have a VedaScore but this will be low. In this case it would be better to find for a lender who is willing to look past this.

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Home Loan Experts are an award winning mortgage broking company from Australia that specialises in non resident mortgages and has a strong history of working with Singaporean clients.

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