Australian Mortgage - How To Borrow To Buy Real Estate In Australia
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Are you planning to buy an investment property in Australia? Many foreign investors are enticed by Australia's stable property market, reliable growth and availability of credit. So how can you too take advantage of the Australian property market?1. The basics of investing in AustraliaAs a foreign investor you will be required to obtain Australian government approval through the Foreign Investment Review Board (FIRB) when you buy. This is a simple process and can be completed through your Australian solicitor or conveyancer. Please note that you will likely be restricted to buying a new property or to buying land and building a house.Buying existing property is generally not allowed as the government believes it may create asset price bubbles if too much foreign money competes with Australian home buyers. If you are an Australian citizen living overseas then FIRB approval is not required and you can buy any type of property.You will need to get a conveyancer or solicitor to work for you to handle the legal side of the purchase. Find one that is in the same state as the property that you a buying. Conveyancers hold licences for their state only, so finding one from outside the area will not help you.You will also need a mortgage broker who specializes in helping foreigners to invest. This article is designed to help you to find a good broker and get approval.2. Where to buy in Australia?Most foreign investors buy in the four main capital cities; Sydney, Melbourne, Brisbane and Perth. Although Canberra is technically the capital for the nation many investors prefer to avoid it as it is inland. The relative abundance of land around Canberra may result in prices not rising as strongly as in the coastal cities where land is short.If you require FIRB approval and are restricted to buying a new building then you may want to consider one of the tourist towns such as Cairns, Townsville, The Gold Coast, The Sunshine Coast or Byrons Bay. These areas are all growing rapidly and there is no shortage of new developments to invest in.You may want to consider buying in these tourism based areas when the Australian dollar is very high. In particular the Gold Coast and Cairns tend to suffer when the dollar is high because fewer tourists come from overseas. As a result it can be possible to pick up a bargain. Some investors transfer their funds to Australia when the dollar is low and then wait for tourism to go through a quiet period before buying in Cairns.3. How much can you borrow?Foreign citizens investing in Australia are generally allowed to borrow 80% of the value of the property. For mortgage loans over $1,000,000 this percentage may be reduced to 70% or even 60% for very large loans.Australian citizens living overseas can borrow up to 90% or in some cases 95% of the value of the property that they are buying.4. How do you prove your income?Whilst in the UK and USA it is common for lenders to rely heavily on a borrowers credit score, in Australia lenders prefer to ask for documents to prove your credit worthiness. Lenders will ask for a range of documents such as payslips, tax notices, letters from your employer or from your accountant if you are self employed.Some countries do not have much paperwork that can be provided, or the tax returns are in a different language other than english. In these cases the banks can consider a "low doc loan" where you sign a declaration confirming your income and the lender takes your word for it. Although this is considered a sub-prime style of loan in other countries, in Australia this is quite a common way for people to borrow and if you are borrowing 60% of the property value or less it actually has the same discounted interest rates as well!5. What are the interest rates?Foreigners applying for a mortgage in Australia do not pay a higher interest rate than residents of Australia. In fact you can apply for the same professional discounts that Australians can get! Most people prefer to choose a variable rate for their Australian loan (similar to an Adjustable Rate Mortgage in the USA) as fixed rates are usually for short terms and are not competitive. Almost all lenders offer fixed rates of up to 5 years, however longer terms from 10 years to 15 years are rarely offered and competition is low.6. Does your credit score matter?Your overseas credit score or credit history cannot be accessed by Australian lenders. The banks will search your name in the Australian credit database, Veda Advantage, however they will not penalise you for not having borrowed in Australia before. You will only be penalised if you have defaulted on a loan or credit contract in Australia before. You may be penalised if you apply with too many lenders, the number of enquiries listed on your credit file can damage your Australian credit score.The banks prefer to look at your asset & liability position, income, debt service ratio and Loan to Value Ratio (LVR).7. Finding a good mortgage brokerThere are two or three mortgage broking companies that specialize in helping foreign investors and Australian expatriates to apply for an mortgage in Australia. The lending policy for foreigner is complex and it is essential that you get the right advice. Most mortgage brokers in Australia do not charge for their services, they are paid by the banks for doing the work that would otherwise be completed by a bank lending officer.
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