Ep 61. How to nail your Pre-Approval
In this episode, Michelle talks to Aaron Christie-David, the founder and director of Atelier Wealth and the author of The Happy Home Loan Handbook about how to nail your pre-approval and get ready for your mortgage in 2025!
Here’s what you’ll learn from today’s episode:
Things you need to consider before talking to a Mortgage Broker
Red flags lenders look out for in your application
How to choose the right type of property to improve your lending options
Why ignoring market noise can help you stay focused on your property goals
What you need to know about conditional vs unconditional approvals
Speakers in today’s episode:
Michelle May - Michelle May Buyers Agents
Aaron Christie-David - Atelier Wealth
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This podcast has been produced and edited by Snappystreet Creative
Please note that any views or opinions presented in this podcast are solely those of the speakers, and do not necessarily represent those of any business. These views and opinions are general in nature, and do not take account of your personal objectives, financial situation and needs. Please consider whether it applies in your circumstances and seek professional advice wherever appropriate.
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VIEW TRANSCRIPT
Michelle:
Hi, and welcome to another episode of the Buy Your Side podcast, the property podcast to help you make smarter property buying decisions. Now, this time, this episode, I'm very delighted that it's not just you listening to me rambling on about what I think I know about the property buying industry, but I'm very delighted to have a wonderful guest with me, a rockstar in the mortgage broking industry and not just that, a very popular podcast host and author. So let me introduce the mystery man today.
His name is Aaron Christie-David, and he is the founder and director of Atelier Wealth, which is a mortgage broking business. He is tremendously overqualified in that capacity. He is a qualified property investment advisor, he has several degrees to his name, a Diploma in Finance and Mortgage Broker, but he's also an author as I mentioned of The Happy Home Loan Handbook, love that title, to help people navigate how to get a mortgage and how to be smarter about it.
So it is my great pleasure to introduce Aaron Christie-David. And today we're going to be talking about how to get yourself ready for your mortgage in 2025. So welcome, Aaron.
Aaron:
Thank you very much, Michelle. I appreciate the opportunity to be here, so thank you.
Michelle:
Well, we've had the pleasure of speaking before on your podcast, which is a fantastic podcast, educating people much like myself, but more from an investment property perspective and everything that that entails, which is obviously a huge, huge domain here in Australia. But today I've invited you to just go through the basics of what first home buyers, any home buyer needs to know about getting yourself in the best possible position to get yourself a good mortgage and the questions to ask. What should people buyers consider before they even come and talk to you?
Aaron:
It may be such a simple response, but I feel people underestimate the time that's involved in getting yourself organised, even just to be pre-approved. I feel people and with the technology that we have at our fingertips these days, it's still a very manual and clunky application process.
We broke it down literally with another client this morning who really underestimated the time that it took to be buyer ready.
So you have an initial call with a mortgage broker. And generally, you might have the time period where you've got to get in line and wait for an appointment. Sometimes it's up to two weeks with our team. And then you've got to get documents. Then we're going to go through lender options, run through questions and answers, then get the application data entered into a bank, assess a pre-approval and come out the other side. We could be talking like a month from where someone made that initial inquiry.
Now, we'd love to move this super, super fast, but I feel like we can only mirror a client, which is if they're organised, we can be organised. If they're responsive, we can be responsive. There's parts that can be a bit of a handbrake, which is “we've got a lot of questions”, and that's cool. I'd rather the questions up front. But to go to your point, I feel like people grossly underestimate the time. They feel like I could just show up to a bank, I'll be pre-approved. It's not as easy as it seems because you might be looking at certain banks, you might be on probation, you might be a contractor, you might have HEX, for example. There's only little parts along the way that will trip it up.
But just kind of pop up and it's like, how do we deal with new information? How do we do it? So it could be a deal breaker or a deal maker, and you want to go through a guarantor loan. Well, that then brings parents into the equation that can add a layer to the process as well. So I hope that kind of answers your question, which is, don't underestimate the time that it takes to be buyer ready, but we will emphasize, and I'm sure you sing from the same hymn sheet, which is you don't start looking at properties without the pre-approval. And like the golden rule that gets broken so many times and people wonder why they go “home buying is a stressful experience”, it can be enjoyable. It can absolutely be a wonderful and enjoyable experience if you get organised. If you find the property before you're pre-approved, guarantee that it's a stressful experience for you.
Michelle:
And I think, I guess, everything is so easy. Well, it seems to be easy and everything's at our fingertips nowadays. And one of my really big bugbears from my perspective are those auto valuations that have tremendous ranges of several hundreds of thousands of dollars and are completely inaccurate because they're done with algorithms. I imagine those auto valuations where you go, get pre-approved, get an estimate of what you can borrow today. I guess they don't help you much as the ones that you have on the big bank portals, for example.
Aaron:
Correct. To give you some context If you're listening, and don't understand what we mean by that. Well, what happens here is you go on to realestate.com.au or domain.com.au, and then it gives you a price estimate. And then you go on to Pricefinder or CoreLogic, and then you get a different estimate or value. So in your mind, you're going, hang on, man, I'm grossly overpaying because the market value on these algorithms are coming in well underneath. That's probably the bane of yours and mine existence, which is conversing about these so-called property reports, and then it's going to a bank's computer or estimated valuation, and then how that stacks up. If we talk about valuations, for example, I'll unpack that. The data that you get in those algorithms, CoreLogic, Price Finder ,realestate.com.au or domain.com.au, they're all working off lag data. So it's pulling up recent comparable sales on maybe a three to six month period, but it may suck up data on a three bedder, in a neighboring suburb, two suburbs away. And that's maybe not the premium suburb that you're looking to buy in. And they're going, well, hang on. Why does this say it's so low here, but the agents are asking for dollars up here? And I feel like where you get the value out of property reports, and I'm certainly going to cut into your lane here, but it's going, use the recent comparable sales that are like for like. So you sift through and you probably get to a point that you've got a spreadsheet where it's like this sold, this is what it listed for. Is it a superior or inferior or is it a comparable property? And what we mean by comparable is land size, bedrooms, bathrooms, car parks, for example, dwelling size, aspect. So things that can't be changed about the property. And then what happens is you might get these anomalies.
Michelle:
Don't forget zoning and DA's next door and all that kind of stuff that doesn't translate in those auto valuations.
Aaron:
Spot on. So I say, use it as research. Don't use it as like the be all and end all when it comes to negotiations.
Michelle:
Absolutely. I think in these instances, a little bit of knowledge can be a very dangerous thing. And particularly when you're telling people that you're looking to buy, everyone has an opinion.
And funnily enough, I was working with first home buyers this weekend and I helped them purchase a property, it’s their first home together. It was a young couple. The gentleman hadn't even told his family that he was doing it because he was like, now I'll just tell him when it's done. And I thought that was a very smart thing to do.
Aaron:
The smartest thing to do, my verbatim on that is “no pay, no say”. So if you're not paying for my mortgage, then you don't really get a say. and it's probably the easiest way to kind of take a view going, mate, you've got no skin in this game. You've got an opinion, but you don't have skin in this game. So parents, that's what happens generally. Parents, which is, if they've got skin in the game, which is it yeah fronting up cash, they're doing a guarantee from equity, then they've got skin in that game. And so generally that brings parents into it, I think you and I have discussed this as well, that can often be the deal breaker because a lot of parents now overlaying their own biases on what to buy, they're benchmarking the market from when they bought, 15 - 20 years ago where the real estate agent drove them to the house, whereas you get 20 minutes on a Saturday. It's a different market from when, with all due respect, from when a parent purchased and they might've bought a couple of properties on the way. Absolutely amazing, I tip my hat to parents that want to help out. But is it a help or is it a hindrance? And we've got to find a way for the situation to go, I would love your support and I respect your opinion, but you've got to overlay this as a 2024 context, the a buying market in 2024 where debt to income ratios are through the roof, where people are finding it impossible to save, and the market's moving at a speed of rate of knots that makes it near impossible to get in without some type of family support or contribution.
Michelle:
Absolutely. And it's funny because this auction that I had this weekend, we bought the property well within budget, and the mum and dad of the female partner came along, and immediately after the auction the dad was keen as mustard to have a conversation with me about the market. And he's like, “but prices are going to drop next year. It's fantastic that you bought the house, but the market's going down, isn't it? This market's going down.” And I was like, “let's have a chat about scarcity. Let's have a chat about supply and demand?” So yeah, 100% agree, if you don't help me pay the mortgage, you don't get a say.
Aaron:
And isn’t it funny when they talk about the market? You're not buying the whole property market. You're buying one property, in one street, in one suburb, in one council, in one city. That can't be defined by the entire property market and you see the data, Melbourne's lagging, Hobart's struggling, Sydney's kind of hit a plateau, but then you'll hear about record prices and it's like, well, hang on, this market isn't homogenous and it kind of gets thrown around. There's markets in markets and there's some keywords around that as well. But I just feel like if you strip out the fact that you're not buying the entire market, you're buying in a particular area in your budget, for example, it really just helps to close out that noise, and don’t worry about what the market's doing. And in fact, you may be early to the party and think you may have some time, but what's the alternative? You keep renting and keep waiting, for what? If the right property comes up, you buy the right property at the right time, where you can afford, when you can afford. And you will never look back. I'm sure you have chats with clients and at no point ever have I heard a client say, “I regret buying this.” They always say, “man, I'm glad I got in. It's lifted in value. We're so happy we've made it home.” And there's no looking backwards.
Michelle:
That's it. Because sometimes the focus is on the market versus I need a home to live in for the next 5, 10, 20 years. The focus gets too much on the market and trying to outsmart the market.
And you're right, we always check in with clients over the years, and just see how they're at. And sometimes in a particular suburb, I'm like, “Oh, I've got to call Jenny, who I bought two years ago, let's just have a chat, and see how they are.” That is exactly that, they've moved in, they're loving where they are, and whilst they're living their life, their property appreciates in value and, they're in the market and that's the main thing.
So going back to before people come to you and apply for that mortgage and get themselves approved, are there things that they can do to clean up their financial history and maximise their borrowing? Are there tips that you can help us with?
Aaron:
Absolutely. There's always ways that you can increase borrowing capacity. It's like that ad, same super, same thing and different results, right? The same, you put the same income, you put the same inputs into our calculators and with 20 something banks, you get 20 something different responses. All banks have different benchmarks around living expenses, the way they assess your borrowing capacity as well. So there's never like a one size fits all model. So the levers you pull to get better borrowing capacities, do you get paid bonuses, commissions, allowances over time, for example. And so different lenders will treat that differently. If you're an essential worker, banks will take 100% of that extra income that you're receiving. So again, it could be job family dependent or profession dependent there as well. And you’ve got to understand that when you have a borrowing capacity, it's usually your income times about 4.5, will give you an idea about your borrowing capacity. You flip it on its head and think about debt. Credit cards, car leases, hex, for example, personal loans, they will down weigh your borrowing capacity by five times.
So a credit card at 5K will take about $25,000 off your borrowing capacity.
Michelle:
And that's that's not even if you have it up to that limit, right? It's just that they've given you the credit, right? That's what I heard. So even if you've got zero outstanding on your credit card bill, but the limit is up to five grand, they still count that as a debt.
Aaron:
Yes. Because you could tomorrow go and max out that credit card. So the bank assumes the worst, Afterpay for example. There's people going, “I don't even ever use that credit card.” Well, the fact is the second that you have it opened in your name, the bank assumes that tomorrow you can go and max it out. If you're not using it, close it out. If you have to absolutely hold onto the credit card, then get the limit pushed all the way down to its bare minimum. Yeah, that's how I know that. But in our house here, there’s no credit cards. As much as we can kill off credit cards, what's the point of having a credit card that you maybe use, to increase your borrowing capacity for a house that you absolutely use? And so where's your values? And the irony is, you close out the credit card, you get your loan approved, and the loan comes with a credit card anyway. So it might be a week or two that you're without a credit card if it's a must-have.
So like I said, incomes will increase borrowing capacity by 4.5 times thereabout, debts will reduce your borrowing capacity by five times, so it actually does you a disservice the more debts you have. So, can we close out the car loan? Can we definitely close out a personal loan? Speaking to your broker, Hex, how much is your balance? Typically, younger first-time buyers that are educated have a decent Hex balance. You may not be able to close it out, but how do we then treat the Hex in terms of which banks are a little bit more favourable around that as well? Some people have salary sacrifices that are voluntary, so just make sure that you note that it's voluntary as well. Living expenses probably comes under the microscope from time to time. Again, it's just saying, hey, look, no one's forensically going through bank statements these days that ship has sailed, but it's just making sure that there's private health insurance that's usually got to be disclosed in there as well.
So it's just those small things that when you're trying to really maximize someone's borrowing capacity, $200 to $300 a month, that could add up to take away some extra borrowing capacity. I think the other mistake that we generally see is people buy loans on rates. People don't buy loans on borrowing capacity. So I'm probably like the worst mortgage broker in the sense that I don't care about the rate, I don't care which bank it is, I'm looking at trying to get people maximum borrowing capacity because that changes the type of home and property you can buy. So if you can eke out $50,000 more borrowing capacity, that means you may not be buying on a busy street. It may mean you'll be buying a slightly renovated or slightly superior property that probably comes with a study, for example, or a car spot. So I'm always looking at the view that you're not buying a loan, you're buying a home.
The property you can't switch out, the loan you can switch out and move at any point. So when people can understand that, I feel like I'm a bit of a martyr with this message, because brokers just typically sell on rate and like the lowest rate. I'm like, I'm the exact opposite. I want you buying where your borrowing capacity gets you the highest. You buy a better asset and a better property that increases in value more, that will do more heavy lifting than the lowest rate will.
In all fairness, you're really the first broker that I've spoken with to make this point. Which is amazing because it makes total sense because I'm all you and I know each other a little bit and have mutual clients. So we always try to focus on A grade property only because that is going to perform better in the long run. It's going to give you more equity. It's going to have better capital growth, et cetera. So that point is just such an important takeaway already to focus on the borrowing.
That could be the difference between getting to the suburb that you want, versus being in a suburb next door and you still yearn to be in that suburb now. And we're so postcode driven that it's like, I really want to be in that suburb. And that's cool. mate I'm an enabler. So if it means that we can find ways, cut the credit card, lose the Hex, cut this up, look at this particular lender, better borrowing capacity. It doesn't matter where the bank is. It doesn't matter if it's a first-tier, second-tier, non-bank lender.
The money's the same, the money's going to come to you. It might be a little bit off from an interest rate perspective, but in 12 months' time, if you absolutely have to, you can refinance the loan and bang, you're leasing the loan for 12 months. The example that I really give for some context, you never looked at a car loan the first time around to wonder if you can buy a car. But the car represented freedom, going out with your mates, not relying on public transport, for example. That's what a car symbolised. The interest rates on personal loans for cars are horrendous, like 17% or something. fine But you never looked at the rate, you pretty much just looked at the car.
And if we can take the same approach to home buying, I focus on buying the property because it gives you the freedom. It gives you security. It gives you the aspiration to live in a particular property. It's the type of style of home that you like. It's an open plan. It's renovated. The loan is just to enable you to help you get into that property as well.
Michelle:
That's an excellent point. So we're obviously talking about things you can do to create very attractive proposals for someone to book to lend you money, are there any red flags that lenders go immediately,”hmm maybe not.” Is that particular buyers’ or the type of property potentially like other things that people need to be aware of?
Aaron:
Oh yeah. A pre-approval is called conditional approval and always subject to a valuation of the property, which is generally where a lot of people feel a lot of risk. The risks attached to that is the property that you're buying that is not acceptable to the bank., and I'd say most of the Metro, Sydney, Brisbane, Melbourne stuff that we predominantly own or occupy, there's very little risk.
The only risk that I see, maybe it's Company Title, Okay, that has its own little nuances to it. So that's instead of Strata Title, it's a Company Title that you get in older style properties as well from time to time, that's probably something that would sit in your domain.
When you're looking at a property and saying, by the way, this is Company Titled as opposed to Strata. The other one is if it's in a postcode, like a high density postcode, like we're thinking like your Zetlands and Waterloo’s of the world, Docklands down in Melbourne, banks don't particularly love that. Or they may have a certain exposure to a particular building or an address, so they go, right, we might hit about 30, 40, 50% in that building, we won't lend any more.
So it doesn’t matter how good your loan application is, if the bank says we're capped out in terms of our exposure, they won't lend any more, it's a hard no at that point. So they're not declining you or the loan, they're saying we just don't accept that property, okay? So again, it's worth just double checking before you get to that part. I don't think you'd be buying high density, but if someone's listening, they're thinking about it, probably avoid that and try and find a better asset would be my recommendation.
Michelle:
Well on that, would a broker be able to provide you with a list prior so that you don't waste time going around, or is that something that's done on a case by case basis also?
Aaron:
Yeah, there's like a platform that we plug the address into and it tells us. But generally, if you're buying high density, it's like six stories, seven stories plus, like those areas that are highly built, Chatswood would be an example there as well considered high density with some banks. The other part is if your loan is over 80% loan to value ratio, so you need mortgage insurance, there's maybe an extra set of rules that come into play with being mortgage insured. So again, case by case, but generally the things there are, is the bonus consistent or or are we heavily relying on the allowances or overtime? So these are small things that can maybe trip up a deal.
The red flags, I'd say to answer your question there for a borrower, is undisclosed debt. Like there's nothing that irritates a bank assessor more than when the bank kind of goes, hey, there's a car loan here that's undisclosed. They don't take kindly to that because they think we're being secretive. Now we may not have known about it. We may not have run a credit check for whatever reason. Usually that's something that slips under the radar with us. And then the bank's looking and sniffing around going, what else are they trying to hide? Okay. And there may have been an innocent mistake but it's almost like guilty till proven innocent in this scenario.
Michelle:
And would that kind of research that the bank is doing happen after you've exchanged contracts, or after you've signed the contract that's when it goes from conditional pre-proval to unconditional pre-proval? Is that when they start doing the research or how many debts have they actually got or would they do that prior?
Aaron:
Good pick up. Because some banks will do what they call an auto pre-approval. I'll give you an example. Bankwest will do an automatic pre-approval. ING is the same where we submit it through to ING or Bankwest. It literally just goes tick, tick, tick on their computer system and spits out a letter going, you're conditionally approved. They haven’t had a human fully look at your pre-approval. It's what we call a fully assessed pre-approval. Whereas if you go to Commonwealth Bank, they will do a fully assessed pre-approval. That won't be picked up until you've got the contract, the sales, say with ING. I'm unfairly picking on them, but they'll forensically go through their application process, go from conditional approval through to formal, and that's when they're doing the credit check, that's when they're doing the bank statements, for example, as well.
We've had one where the client innocently said that was single. They were in a relationship, but they were the ones that were buying the property. It was their cash. It was their income. They were in a relationship and so the bank found that they had a shared bank account, and didn't take kindly to that. and we said, look, it's an innocent mistake, for example. He said, you didn't want the partner to be involved and the bank said, no, we're just going to assume this is telling a FERFI. At that point, they dug their heels in there. There were a couple of other things there as well, but that was the main deal breaker. So again, if you've got shared accounts and you're doing this as a single, tell your broker, and I think that's the part where we're not the bank.
Obviously, we've got massive compliance, but when we know policy, we can look at a bank that then and say, we're going to exclude the partner as long as we can factor in shared living expenses or whatever it's going to be. They're in a relationship, but they're buying this solo and independent. So the broker needs to be brought into the conversation, warts and all, tell the story, no judgment. That way we can go, okay, that bank won't work. We can go to this bank and we put some commentary around it as well. And that's the beauty. When you talk upfront about what's going on in a person's scenario, the bank's very kind to it.
Because you've got to understand, Michelle, that you and I have had probably hours to get to know a client. We've poured over their info. We have had a chat with them. We've worked out what they're trying to do. The bank gets this static application on paper and they sometimes get 20 minutes to make a decision. Some banks are on the clock. They give a status of maybe 30, 40 minutes on a simple PAYG loan. It's maybe like the SLAs on that is 20 minutes. The assessor gets very little time to actually review, make a decision. And so they can misinterpret something. They're not perfect either. They can misinterpret something, send it back to us going, I don't like this. And then we’ve got to relay that information to a borrower. They're thinking about the worst case scenario and we're going, hang on. It's not a deal breaker. They just want some more information.
Michelle:
So you've got to look at your mortgage broker a little bit like your therapist or your buyer's agent. We're on your side and be honest, what's it all about, like you said. Because yeah, then you can mitigate any risk factors upfront and potentially also once you do find that property and you think you've got a pre-approval, you don't run that risk of then getting rejected and being in a complete panic of having to find another lender, which oh my gosh that's so stressful.
Aaron:
It’s stressful, and it happens, Michelle, I think there's one part, and we've spoken a lot about the client experience. We want to be as seamless as possible, but there's things that are out of your locus of control, like the conveyancing or the contract side. There's things out of our locus of control. There's things out of a borrower's locus of control. And I think to me, it's how you deal with it that really defines how we work together as a team. So there will be, I tell everyone, there may be things that go off the rails a little bit, but it's how we handle it. You don't go missing, you stand up, you find a way to front up and sort it out, come up with options. But no one's promising a seamless, smooth experience here.
We’re dealing with banks that have imperfect processes, the loans approved and then they issued the loan contracts and the loan contracts have been wrong this week. Even then after the fact, it's still not perfect. And I'll put our hand up and say, we're not perfect either, right? So yeah, and from time to time, there'll be things where we might occasionally drop a ball here and we're all busy, but no excuses. It's just how you handle it. I think that's a really good partnership. It's cutting out a little bit of slack and just going, yep, as long as you sort this out, there's trust and faith in you and it's the best way to move forward.
Michelle:
I think it's also important to look to work with a broker who understands what it is you're trying to achieve and what it is you're trying to buy. So I recently got contacted by potential buyers and we do this service called an Evaluate & Negotiate, which is where the buyer has found a property and they then want help for us to do all the due diligence, read the strata report, development application zoning pricing all that kind of stuff and then go to auction or or do negotiations. They sent me the property link, and I was like, okay, let's have a chat and immediately the first thing I always do is look at the floor plan. So I looked at the floor plan. This is only 37 square meters internally, so when I chatted with them I was like, listen ladies, have you spoken to your broker about the conditions on your pre-approval? Are there any things that you can or can't buy, such as Company Title versus Strata? I said, but usually there are quite often, and you may correct me if I'm wrong, Aaron, there is a minimum internal square meterage required. And they're like, what? What do you mean? And I was like, well, and they sent it to the broker, right? I forgot to say this, they'd already sent this to the broker and the broker said, yeah, no problem. We can, we can lend on that. And I said, I think you might want to go back to him because it's quite often 50 square meters internally. And that's excluding the outdoor area and balcony.
On Strata titles, the paperwork that's in the contract, you can see the drawn out plans. And frustratingly, they have the internal square meters, including the balcony or outdoors area, usually as one size, and then you have parking, storage, whatever else is extra, right? And then that makes the total entitlement on, square meters on title. But when a lender looks at it, they exclude the outdoor area, correct?
Aaron:
Right. Correct.
Michelle:
Yes. So if you've got 30 square meters, or say 50 square meters internal, but your balcony is 7 square meters, that means your internal is only 43 square meters and therefore they may not approve the loan.
Aaron:
Spot on. Yeah. And you're right.
Michelle:
So, they ended up going back to their broker and the broker said, yes, you're right. And so they walked away. Luckily they did because otherwise they may have really struggled to get a mortgage for it.
Aaron:
Yeah, so if what you're alluding to there is Studio’s under 50 square meters. There's only really two banks that will lend on those. And generally, you've got to have a 20% deposit. And if you've got to have the policy to fit two banks, you really limit your options, and so again, it goes back upstream to like asset selection.
And look, a Studio may be all you can afford. OK, that's cool. Well, I'll pay that. But is it the right is it the right asset because there's such limited growth on a studio because you can really only resell that to someone that wants to buy and if the financing is only through two banks and it really limits your buyer pool you might feel like it's a bargain on the way in but at some point you've got to exit this property and you've limited your buyer pool to either cashed out buyers or buyers that have a 20% deposit on a studio, and then you've got to be asking the question, if a buyer has a 20% deposit, why would they be buying a studio?
So yeah this whole topic almost goes back to asset selection, which is your wheelhouse, but from our perspective, that's a conversation that we're echoing going, just because you can't afford it, is this the right one? You will probably outgrow it and you have conversations with your broker about your plans, I'm always asking, if you're a young couple, with all due respect, or you think about a family, I've been there, and I know that you will outgrow a property, you're in it to a townhouse, to a freestanding house, and it's like, if there's two lots of stamp duty, two lots of agent fees, it's what I call a stepping stone property, so you'll step your way up, versus can we go for a stretch property, double income, no kids, best borrowing capacity we have for a long time.
Can we stretch ourselves and get ourselves into a smaller freestanding home or a larger duplex or townhouse that you don't have to then put another property in the mix as well. Generally, when people go to buy, they've got a child or two, one partner's on maternity leave, savings are dwindled, and it's going, hey mate, you've limited your options here versus it may feel like you're biting off more than you can chew as a younger couple, but double income, no kids, you've got to understand you are in the absolute golden window of borrowing capacity because if you have to cover a partner that's out of the workforce, or you've got an extra baby, a baby will take off $50,000 in borrowing capacity.
I know that because I've got two kids and I worked it out before they were born. And that's again, something that you wouldn't know unless you're actually in the thick of it versus knowing this upfront going, mate, if we left this too late to wait till our second comes along, we've lost nearly $100,000 in borrowing capacity. That's a lot of money to make up and you can't actually make that up from an income perspective.
Michelle:
Yeah, that's interesting. We always have that conversation, how long are you thinking of holding onto this property? Because if it's less than five to seven years, maybe you should reconsider, because the cost of acquisition versus the cost of sale is huge. And even if you've got an A star performing property, it's all going to be usurped by costs, never mind the stress that moving causes. Yeah, absolutely. So going back to that then, what we just discussed about discussing your needs and wants with your broker, are there actually parameters around what a broker is able to advise you on versus what they shouldn't or you can't?
Aaron:
Absolutely. I think you've got to stay in your lane. And I will from a lending perspective, that's what we should be focusing on. Some brokers won't give credit advice. I don't think that's right. I think we can give guidance around borrowing capacity, lender options, how much you could borrow as a maximum, guarantor loans, interest only, principal interest, fixed variable. That's the wheelhouse of a mortgage broker. Where you move into what I call a strategic mortgage broker is asking those questions. How long are you thinking of being in this property floor? What's your income trajectory? I've got a young client, Accountant, going to finish his CA, you get like 20, 30% increase. I'm like, mate, do that and we can go to the moon straight after you get that pay rise.
Clients that will then say, look, we might be in this property, but we're gonna live overseas for a few years and work on a secondment. Okay, great, we understand you're gonna turn this into an investment, which means we might be thinking, make this loan interest only. So there's reasons and there's methods to the madness that you go, tell me a little bit more what your intention is gonna be for this property, and we can get the loan to, I call it the property strategy and the loan strategy. If we can get these two to marry up, there's a reason for what we're doing and why we're doing it.
When people are a little little bit, I don't know, when they don't have the foresight we can only work with what their situation is right now. Whereas I know some clients when they tell me they're in sales roles, I'm going to get a mad bonus next year or I'm banking that bonus for next quarter or the next six months. We can factor that in, we can stretch the borrowing capacity because we know you're going to get a windfall of cash or we've had with inheritance in the past as well. And that conversation is when you meet a broker halfway, when you're willing to be open, disclose where your life is, disclose what your plans are, for example. That's when you get the best out of us, when we can show up with the best strategy possible as well.
I think building the team around you, so when you get a buyer's agent, your conveyor or solicitor, your broker, for example. If you're self-employed, get your accountant on board as well because we're going to need financials. Some people have a financial planner at a young age. We have good incomes, shares that are vesting as well. Just depending on the nature of your current complexity, where you are in life.
For example, we have had people that have been through a divorce and they come back to us and there's like, so there's hybrid families there as well. So they may not necessarily have the cash, but they've got the good income. And it's like, okay, how do we work to rebuild my life as well? You have got understand, you see this as well, there's no like one size fits all.
Everyone's scenario is different. We want to treat everyone individually, so there's no cookie cutter approach. It's going, hey, what do I need to know about your scenario? Where are you trying to get to? I’ve got clients that go, I just want to stop renting, I want to be in my home. I want to pay this loan off as quickly as possible. Perfect. I want to buy my home. I'm going to upgrade this, for example, but when I upgrade, I want to buy a couple of investment properties. Okay, great. Now we know how to structure the loan, for example. Hey, guess what? I'm a CPA or CA. Okay, awesome. I'm a lawyer. Okay, we can go with a 10% deposit, not paying mortgage insurance, for example. And again, part of our role is to be curious and ask a lot of questions.
And part of a client's role is to tell us as much as we possibly need to know to then look at your options. I'll give you one example. So we had a client that wanted to do both. I want to buy my own home and I want to buy an investment property. All right, limited borrowing capacity. We can get you to your first home, but how are we going to buy the investment property? We look through their fact find with us, and they've got that 250 grand in super. We can buy a self-managed super fund investment property, buy a home and an SMSF property, and we get the two we get the two done and mission accomplished. That was his goal for 2024, which is to buy my own home, buy an investment property, and we tick both off the list. Now we can buy another investment property in 2025. Again, it's just helping people think a little bit bigger.
If your broker, that's probably where we get a lot of enquiries to us, which is, my broker thinks a little bit small, they're not willing to push the boundaries, they're not strategic enough. If you don't have that partner, you're only as good as the team that you got around you.
Michelle:
Absolutely. So I think that that is the key, isn't it? Someone who's willing to think with you and outside the box, they come to you not knowing what they don't know, like people come to us, they don't know what they don't know, they need our help. And, I've stressed this so many times already in the past, where this is why I always advocate for going to a broker, as opposed to just stepping into a branch of a bank.
Because a good broker will be able to show you all the different options out there and really think with you and forward thinking for the future as well. Because they can make the difference to your next stepping stone and make sure that you're not under duress and stress. And if you've really got a thought out plan moving forward. What I wanted to ask you is now you've got, you're a broker, financial guru, you've got your podcast. Tell me more about your book.
Aaron:
Thanks. This is The Happy Home Loan Handbook. I feel like this was born out of a bit of frustration, personally. So what I felt was the media peddles a lot of stories about how hard it is for younger Australians to get into the market. There's an element of truth to it. But every time we get a first home buyer in here, we can give them options. And again, I talk about projecting confidence and giving possibilities and options. That's our modus operandi, which is come to us, we'll give you options, maybe in saving for another three months or whatever it is, but I'm going to give you options. There's no no's here. Whereas when there's an SMH research that came out, that 9 out of 10 young Australians thought they'd never get into the market, with that rhetoric flying around, it makes our job exponentially harder to convince people that you can actually get this done without sounding like a snake oil salesperson. That's like, actually, you can like the media voice is stronger than ours.
Michelle:
The people give up before they've even tried.
Aaron:
Oh, mate, spot on.
Michelle:
It's just defeatist and I mean, I read all the papers, so it's a necessary evil to keep across it all. And it's just sometimes I just want to shout at these papers going, Jesus, come on, like, don't give an unbalanced approach. So, yeah, sorry to interject there.
Aaron:
And misery loves company, right? So you look at your network and if all the people around you are bitching and moaning that they can't get into the property market, you're going to buy into that. And then you come across someone like our team and it's like, actually you can. And like straight away, they're thinking these guys are shysters.
Michelle:
Well, and also it might not be what you thought you were going to be buying. And I think that is the thing, right? You've got to be willing to listen to the different options. It may not be that three bedroom detached house with a 300 square meter garden, off street parking and a spa in the backyard, but it will be something that will help you on your way.
Aaron:
Oh man, it's a one bedroom and a study in a really nice area. It's convenient locations and it's low maintenance. Like, cause you're a busy working professional and you hardly spend time at home, but it's fit for purpose. And my wife was like, just stop getting mad and try and do something about it. And that's effectively how I became an accidental author because of that. I literally called the publisher, I pitched this idea and they said, write us some chapters. And that's how it started. And then so last year I had the chance to go away for three weeks and write exclusively. That's where I punched out a lot of the conversations over my time in broking that I knew have landed, that I knew that were impactful, that had really kind of resonated with clients.
So to me, this condensed a lot of that learning because I work a lot with investors, right? They're a little bit more advanced, but I feel like this is my gift to first-time buyers because I can't deal with people one-on-one in that sense. There's only so many conversations I can have in a day. So how do they get like that knowledge that's sitting in my head, because first home buyers, it's like this, they've got to listen to podcasts, they've got to watch videos, and they've got to read books to actually build a baseline of knowledge. If you and I sat in front of them, and said, LVR this, it would just be like going over their head, and they can't retain a lot of that information.
Michelle:
It's a constant stream of noise.
Aaron:
And you can't remember it all versus when I get people to read the book now they come back and go yeah on page here you spoke about this, and I'm like awesome, the penny has dropped and so the book for me is a very tactile way because first home buyers are very information hungry. They'll do a course, they'll read a book, they'll listen to a podcast, watch a video. It's like, this is just feeding the beast of information. If we can get you more educated to make a good decision, that's what the book unpacks. So it's how to get your loan approved, how to buy the right property and how to get on with life. And I feel like that last part of the chapter is like my ethos, which is you stressed and agonised about it, but here's what happens. The mortgage comes out on the 15th of the month. Your pay comes in and you make your mortgage repayments and you were overthinking it and overstressing about it. So many Australians have been there, done that where they bought a home, made their mortgage repayments, made it work and many more will come after you. So don't overthink it. Get on with enjoying life.
I'm not sure about you, but I've rented and I've owned and I'll take owning every day because I walked in and we had this chat with our team yesterday. It doesn't matter what it is, when it's your place and no one can take it away from you. I’ve got one team member. She got given 30 days notice. We're right near Christmas. That's not fun. That's not fun, right? To be, someone holding a barrel, a gun to your head, going, at any point I can give you a notice, then pick up and move with a family. And to me, a home loan debt is probably the happiest debt you'd probably take because you've got your own peace of mind. You've got your own security and no one's taking that away from you and now we get to be part of a great community. We've got our neighbours, we've got our family home set up. We can do some work to the property knowing that we're improving it, but there's this security and stability that comes with like stop renting and renting will get you to a certain level, but it won't get you to that next level and there's so much research around home ownership, financial security, building yourself up for the long-term wealth into retirement as well, that it's just so tried and tested. I'm like, argue the fact for me on why buying's not better than renting. And I don't know, I'm happy to throw down in that conversation personally.
Michelle:
Well, there's a challenge for those who are listening. Let me give you his personal phone number so you can hit him up.
Aaron:
Because I'll get this. I'll be like, rent vest. I'm like, yeah, 100%. But tell me, when you've got two small kids, like we do, and we want to be part of a community, we want to put down roots for where our kids go to school. You can only embody that when you're in it. And I know it because there's families in the area that rent, that want to send their kids to the school near us. And it's like, but the second they get noticed, that decision’s made for them. And that's why I just say there's so much benefit that comes with owning your own home. And like, I think it goes back to the very start where you said, everyone's got an opinion. You do you boo, like you just focus on you. And if that's what makes you happy, you're owning your own, whatever size, shape, form, suburb it takes. Mate, that's yours and the great Australian dream on your version of it has got to be celebrated.
Michelle:
I think that's a really, really powerful note to finish up on. Now, you and I had a conversation before this because you said that you would be happy to give away one of your books to a lucky listener. So how about we set this up? If you follow Buy Your Side on Instagram and you follow Aaron, do you want them to follow Australian Property Investors podcast or Atelier Wealth?
Aaron:
Yeah, jump into Atelier Wealth, usually some of the shorts that we got for the reels, pop up there. So yeah. Follow us both, give us a like and a comment and we will pick someone to receive Aaron's The Happy Home Loan Handbook book.
I'm happy to share with anyone that reads, like, that's what I genuinely mean by helping more people. This is a gift. There's no tickets on myself in terms of like, this is not the be all and end all of like home buying books, but if it just helps someone on their journey, mission accomplished.
Michelle:
Absolutely. Well, that's all I'm here to do as well. Just spread the word of knowledge on how to make better property buying decisions. Aaron, it's been an absolute pleasure speaking with you and just getting into your brain a little bit and understanding how much you actually know. If people want to get in touch with you and your team, what's the best way to do that?
Aaron:
Yeah, jump onto our website, atelierwealth.com.au. Check us out. There's usually a booking link in there to schedule a time that suits you. It's probably the easiest way to do that, self-serve. And then for us, all we're asking is for people to show up. The energy will match that. If you're keen, eager, and you want to find a way, then we kind of see that as our mission to then help you and your family.
Michelle:
Thank you, Aaron. So hit Aaron up, Atelier Wealth. The Happy Home Loan Handbook is out there for you to purchase and read. If you want to know more about what Aaron knows about everything that you need to do to get on the property ladder. Thank you again. If you have any questions for Aaron or myself, hit me up at hello@buyyourside.com.au. Thank you for listening and until next time.