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FAQ's - Loans to Lifestyle

Your questions answered ….

Q: When should I think of contacting Loans to Lifestyle?

A: As soon as you start to consider making a major purchase, or a major life event happens (eg getting married, ist child, getting divorced etc), or a major business decision. This will give us the best opportunity to prepare a financial strategy to meet your needs and provide you with best transaction outcomes.

Q: What does "cash flow positive" mean?

A: "CASH FLOW POSITIVE" in investment terms means that the combination of income (rents), depreciation and tax advantages, including the $9,524 tax credit received by the investor are greater than the cost of buying (interest on mortgage) and maintaining the investment (NRAS property). For many PAYE and PAYG taxpayers their investment in one or two NRAS properties, with an interest only loan, is indeed actually or very nearly cash flow positive. Each case is different, as it depends on your marginal rate of tax and you should consult your Accountant or tax specialist.

Q: What is NRAS ?

A: "NRAS" is the "National Rental Affordability Scheme" which is an initiative of the Federal Government and is jointly funded and administered with the States. It is designed to provide quality rental homes at reduced rents for the large number of Australian families unable to buy their own homes or to afford the full cost of market rents. In essence the Government is using indexed "Tax Credits" currently at $9,524 per property per year to pay back investors who agree to accept rents at 25% lower than normal market rents. See letter from Treasurer Wayne Swan and Housing Minister Tanya Plibersek.

Treasurer of the day, Wayne Swan explains

Dear Potential Applicant,

Thank you for your interest in affordable housing and the Australian Government's National Rental Affordability Scheme. As you know, rent increases are outstripping wages growth and inflation. This is making it harder for Australians on low to moderate incomes in the private rental market. The National Rental Affordability Scheme is a major supply-side initiative to make rental properties more affordable by encouraging large-scale investment in rental housing for low and moderate income families and individuals.

It aims to assist institutional investors, developers and not-for-profit groups to deliver 50,000 rental dwellings over the next four financial years by creating a new residential property asset class for property investors.

The Scheme offers significant financial incentives to applicants commencing at a minimum value of $8,000 per dwelling annually, for a period of 10 years.

The Incentives provided under the Scheme will assist investors to develop proposals that provide an attractive rate of return. It presents a new investment opportunity in the Australian market. More than 1.5 million households will be eligible for tenancies under the Scheme - a large and diverse pool of potential tenants for investors in affordable housing projects that will be made available through the Scheme.

This document has been developed to provide information to institutions and organisations that are considering investment in affordable rental housing.

We trust this information will assist business to develop proposals to take up the incentives on offer.

Yours sincerely,

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Q: What are NRAS tax credits?

A: A tax credit of $8,000 per year (Now $9,524) is given to NRAS investors for each property they buy. This is tax free income. So if an investor is currently paying $18,000 in income tax per year, the amount payable will reduce by $9,524 to $8,476. The credit can be applied from the start of a year by applying to the ATO to bring that tax credit forward, so that the tax payable per month is lower, rather than waiting for a rebate at the end of the financial year. Your Accountant or tax specialist will be able to give you the best information for your circumstances and advise how to apply for that facility.

Q: How many NRAS properties are available?

A:The Federal Government plans to have 50,000 NRAS homes Australia-wide built by the end of 2012 -2014. However, in current rounds, we have submitted over 2,100 properties for approval. From June 2011 these properties become available. These are being allocated on a first come basis to investors who complete the paperwork required and pay a fully refundable deposit.

Q: Are NRAS properties housing commission homes?

A: NO. It is important to distinguish this program from the federal Government “Social Housing Program”. This is NOT part of that program and attracts totally different tenants. All NRAS properties are high quality homes, in desirable areas, designed to provide affordable housing for “middle Australia” families on good incomes but unable to acquire the deposits or to afford the mortgage payments needed for home ownership. A Family with three children can earn over $100,000 pa and still qualify for this program. Government projections indicate that continued immigration and Queensland regional growth will create a continued high demand for this style of home. Other programs are under way for “Social Housing” / “housing commission” style dwellings for those on low incomes and difficult circumstances.

Q: I understand that the NRAS program runs for 10 years, so can i sell the property during that period if I need to?

A:YES You can either sell it as a highly desirable, income earning investment property, without any penalty, by leaving it in the NRAS program. Or... You can opt out of the NRAS program to either sell the property on the open market or to move into it yourself. If you do that, you will lose a proportion of your Tax Credit for the tax year in which the property is sold.

Q: Under NRAS, who sets the market rent & how can we be sure that it remains adequate?

A:The market rents are set by independent valuers appointed by the Government at the beginning of the lease term. You will be able to calculate your rental returns at 75% of this figure and to add your tax credit (Now $9,524 pa) and allowable depreciation to arrive at your net returns per year. We suggest you involve your accountant / tax advisor in this process. The rents are CPI indexed each year at the average Capital City Rent Component of the index (Last year 4.2%) and are reviewed to market every three years. It seems likely that this three year review will then result in substantial increases based on past growth in rentals and the continuing high demand for rental accommodation due to the population growth.

Q: The NRAS property manager charges 10% where as I can get property management for 7% to 8% in the market.

A: YES this is true but the services provided are not comparable. The QAHC has arranged Property Management Agreements that include all in costs.
There are no extra charges for things such as :
   * Letting Fees
   * Annual Rental Increments
   * Re-letting Fees
   * Advertising
   * Administration etc.
In particular the Property manager must pay rent for the first two weeks of any vacancy that occurs after a NORMALLY occurring end of lease situation. This is because the Manager has a large and ready pool of tenants to select from and extended vacancy should not occur in this situation. This penalty will encourage the Manager to make sure the incoming tenancy is set – the penalty is almost half of the annual Management fee. Abnormal vacancies are covered for up to 15 weeks under the extended insurance Policy put in place by the QAHC – another significant benefit they offer.

Q: Can I buy more than 1 NRAS property?

A: YES. There is no limit to the number of NRAS properties that can be bought, other than your ability to obtain finance.

Q: What are the steps in my loan settlement?

A: Meet with Loans to Lifestyle and discuss your requirements. Loans to Lifestyle considers your requirements, and the best available financial solutions. We then provide you with our recommendation that in our opinion best suits your needs.

We then complete the loan application with you, and provide any supporting documentation to the lender so that they can assess your loan.

You need to provide us with the items we have advised you are required.. This information is required before we can lodge your application with a Lender.

You need to provide us with the items we have advised you are required.. This information is required before we can lodge your application with a Lender.

We will then continue to liase with the Lender and keep you informed on progress.

We will then follow up on Conditional Approval with the Lender. Normally this is received within 1 to 3 days of lodging your Application (assuming that all of the information has been provided). You will be advised of the Conditional Approval.

Formal Approval is when your loan is Unconditionally Approved. When we receive Formal Approval advice from the Lender (when all conditions have been met), we will contact you and advise you of approval.

If you are discharging a loan from your existing Lender (i.e. paying out a home loan or other loans with another Lender) then a Discharge Authority Form for that Lender needs to be completed and forwarded to that Lender's Discharge Section, instructing them that the loan will be paid out. This is required to prevent any delays in the settlement. This form is available from your existing Lender. If you are having difficulties locating the form, please contact us immediately for assistance.

After formal approval is completed, the Lender will arrange for loan documents to be prepared and sent to you, and we will go through them with you to both ensure the documents are correct, and explain them to you. The mortgage documents are then returned to the Lender or his Solicitors who will book the settlement with other parties in the transaction.

If financing a property, make sure that insurance for the property is arranged no later than 5 business days prior to settlement. The Lender financing the property must be noted as having an interest in the property. A Certificate of Currency must be forwarded to us prior to settlement noting the Lender as the interested party. Please note that a Cover Note from as Insurer is not acceptable. If you do not have an insurer or a broker, please contact us to assist you. We will be able to refer you to a reputable insurance broker.

You will receive a final settlement statement from your settlement agent or solicitor showing the actual disbursement of money to all parties involved.

Q: How long will it take for my loan to settle?

A: From the time you first see Loans to Lifestyle until the actual settlement of your loan it could take anywhere between 5 days to 8 weeks. The actual time frame depends on many factors like the type of loan, the transaction and number of parties involved, the entity types involved, any refinancing requirements, the lenders own procedures and processes, the completeness of the application and many other factors.

Q: What can I do to speed up the settlement of my loan?

A: If you are constrained by time you must advise us in writing of your preferred settlement date. You must also provide to us all the requested documents and signatures in the time frame we state.

Q: What can delay the settlement of my loan?

A: In many cases delays are caused by the borrower not providing the information requested, or not being completely honest in disclosing their full financial circumstances. It is absolutely vital that you are completely honest with us so that we can address and mitigate any potential issues before they become problems. Other reasons that can delay your loan include various valuer issues, refinancing complications, various issues relating to security of title that are not known at the time of application, credit issues noted on your credit file and taxation & other issues. Sometimes for various reasons one party in the transaction is just not ready to settle.

Q: Do I have to give all of my details and history to Loans to Lifestyle when I apply?

A: Absolutely and definitely, Yes. Without all of the information we request we cannot qualify you well enough to make a decision on which Lender and loan products are best for you. Furthermore, without all of the information, we cannot lodge an Application for the loan.

Q: What fees do I pay and when?

A: All the relevant fees will be fully disclosed to you in our statement of credit advice. The fees themselves vary greatly between lenders and loan types and also differ in those that require up-front payments and those that take the fees out the loan at settlement.

Q: What is Lenders Mortgage Insurance?

A: Lenders Mortgage Insurance ("LMI") generally applies when your loan is more than 80% of the value of your security property. In some cases though, the lender will require it to be paid on a much lower or higher Loan to Value Ratio. LMI is designed to protect the lender in the case of a shortfall in loan default proceedings.

LMI does not cover your mortgage repayment if you cannot pay it. It only insures the lender against any losses and the LMI insurer will recover any claim by the lender from you, personally.

Q: I already have a valuation on my security property - can I use it?

A: Generally No, the Lender will choose their own valuer and will arrange for the valuer to inspect and value the security property. The cost of the valuation is passed on to you.

Q: Do I get a copy of the Valuation?

A: Generally No, the valuation remains the property of the Lender. However in some (not all) cases Lenders will allow a borrower to have a copy.

Q: What if I don't have all the supporting documents required?

A: It is essential that you advise us immediately of anything that you cannot provide. In some cases there may be alternative solutions.

It is essential that you provide all the documents exactly as requested. eg if the last 6 months bank statements are requested, make sure you start with the current month and go back for 6 consecutive months without any gaps.

Q: Will my interest rate change between unconditional approval & settlement?

A: The interest rate will not change if you have selected a fixed rate loan with a rate lock option, or you have a loan with a designated capitalised monthly interest rate. If you have a standard or discounted variable rate product, your loan will settle based on the rate of the day at settlement.

Q: How much can I borrow?

A: This is one of the most commonly asked questions. Try our calculator for an indicative estimate . When you meet with us, we can quickly filter all available lender products and advise you of your borrowing capacity.

Q: What if I have bad credit?

A: Bad credit will not necessarily prevent you from obtaining a loan. The important things here is to completely up front & honest with us so that we can accurately advise you of your loans options, and how we can go about "cleansing" your financial record for future loan applications.

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