Top things to ask your broker before you buy

Low interest rates have been encouraging property investors and savvy homebuyers to purchase properties. Investors Choice Mortgages founder Jane Slack-Smith told Property Observer she is seeing “more mortgages than ever, at 2009 levels.”

With a huge number of mortgage brokers out there, it is important to ask them the right questions before committing to a certain broker or property. Often, one hires a mortgage broker to save both time and money. Here are a few tips from Slack-Smith, Aussie Home Loans Parramatta owner Ross Le Quesne, and Smart Property Adviser’s Kevin Lee to help ensure you are on the right track to achieving your goals.

Slack-Smith first warns property investors against using certain checklists that have been circulating around the internet, stating that your mortgage brokers need to have investment properties themselves, or they need to have won an award.

“When I first started, I asked my broker if he had investment properties himself. But he said he had a family and was investing in his own business, and has just the one house. Yet he was one of the top brokers working for over a thousand investors. Hence I don’t necessarily think it’s a criteria,” she said.

“I’ve seen people promote awards – but they’ve actually put a lot of marketing dollars behind promoting that award. That’s not the best way to choose a broker either,” she added.

Her advice – “It’s not what you ask the broker, it’s what the broker asks you.”

She notes that brokers who ask their clients about their income and existing loans are often more interested in a simple transaction rather than working in partnership with their client.

“If they ask you, ‘What’s your long term goals?’ ‘How is this property going to assist in getting you there?’ they are more in tune with your long-term plans and success than just a short term transaction,” she said.

Property investors should also avoid the trap of going for the lowest rates. Slack-Smith said she has worked on many cases where she has come up with a structure, and fought with lenders for a flexible loan only to have her clients tell her, “I can get a cheaper rate somewhere else.”

“Unless you are an advanced investor, it’s not about rates. It’s about the right structure to do what you want with your portfolio. For example, someone may go for a cheap loan that doesn’t allow them to come back after renovation to access the equity,” she said.

It is also especially important to let your broker know what type of property you are intending to purchase upfront, instead of simply stating you want a loan for a certain amount.

Often, brokers act on that amount, work out the best structure and loan, and gain pre-approval from a lender, only to be told that they cannot go ahead with the loan as the lender’s policy does not suit the type of investment their client wants to make. 

This is then hidden in the investor’s credit file, and could create problems down the track.

“You’ve got to keep your credit file very clean,” Slack-Smith emphasised.

Slack-Smith also states the significance of having a broker who has your interests at heart.

“Sometimes you need to have a broker that is willing to give you the harsh reality and the bad news stories. Not everyone is willing to do that,” she said.

Aussie Home Loans Parramatta’s franchise principal Ross Le Quesne has had 17 years’ experience in the mortgage industry. He says that experience is key for a broker to structure a loan that will best meet his client’s needs.

“It’s more about their (the client’s) overall goal, more about understanding that goal then structuring the loan,” he said.

He is often wary of brokers who focus more on the product as opposed to the structure.

“A lot of basic brokers may structure the loan in a way where the properties are cross collateralised, which will add cost and complications down the track,” he said.

What happens if a property investor has already gone down that path? Le Quesne says it is possible to refinance and undo what has already happened.

Smart Property Adviser’s Kevin Lee notes that with interest rates at record lows, a savvy investor would ask, “Can I afford this if interest rates go up by 4%?" 

If they don’t consider an increase in interest rates, Lee states that an investor’s dreams could quickly turn to a disaster.

“A home or investment property is not meant to be a massive financial weight on your shoulders; unfortunately though many people buy with their heart and not their head,” he said. 

He definitely recommends that investors arrange their finances before purchasing a property to avoid penalty interest.

“Just remember, finance first!” he said.