The 4 C’s of Lending

Video Transcript

Robbie: G’day ladies and gents, Robbie Turner here from Axon Property Group. Welcome to some super important videos.

Now, I’ve got this little training philosophy, right? Let’s talk about Axons for a second. You can have all the intent in the world, but if the numbers don’t stack up, it’s not happening.

One of my other little philosophies is that to be successful in property, it’s not just about buying houses and real estate, it’s actually a game of money and finance. So it absolutely makes sense that we narrow down some of the fundamentals that you definitely need to know before you even start your journey.

Watch these videos. There’s about five or six of them. They’re only going to go for two or three minutes each, but they’re going to be super powerful. When we do the coaching session, myself or one of the other coaches, after you’ve watched these videos, we will apply all this generic information to your individual circumstances. It’s going to give you an even warmer start by the time you come to the coaching session, because you’ve actually got your head in the game as far as what can happen from a finance perspective.

The first one is the Four C’s of lending and finance. Now, for all you gentlemen out there, and ladies for that matter, anyone who’s going to put a ring on someone else’s finger, you’re going to go and put this amazing big diamond ring on someone’s finger for whatever purpose that may be. My missus is probably going to want one at a 10-year wedding anniversary.

There are the four C’s of diamonds – we’re talking about colour, cut, clarity, and carat. They’re the four C’s of diamonds that you need to know. Guess what? I’ve now got another little diamond for you, which is called the Four C’s of lending.

This is effectively the lens or the assessment tool that the credit officer and your mortgage broker are going to use before you even go to apply for your loan.

So it starts like this, right? I love the traffic light system. We are at a stop until we get four green lights, and I’m going to show you what those four quadrants are.

Deposits and Costs

Now, as you can see on the screen, the first one is all about having your deposit and costs. What we’re talking about there is you either need cash or capital to get started, which is what most people do when they’re buying their first property. Or, if you’ve got some equity in your property or some collateral, as it’s commonly known, in the rest of your portfolio, you can also grab some of that collateral or equity to then go and use as your deposit and costs.

Now, it’s really important to note that you don’t just need, let’s just say you’re buying a $600,000 property, you don’t just need $60,000 to get started if you’re doing a 10% deposit. You need your $60,000 to get started, but you’ve also got to pay your lender’s mortgage insurance, your stamp duty, and your legal fees. That effectively encompasses the cost element of your deposit and costs.

So it’s really important to understand the D and C element of that. The previous videos that you would have watched to get to this point about booking a coaching session, during those educational pieces, you would have seen when I was teaching you how to grow a portfolio, you need your D and C, or deposit and costs. Well, guess what? That’s where it comes into play.

Conditions

The next one, up here in the top right-hand corner, is all about the conditions of the loan. What are the broad circumstances, for want of a better term. It’s all about what job you have, how old you are, what your cost of living is, and what your online spending habits are, or your character.

So what I mean by cost of living is this thing called HEM, which is your Housing Expenditure Measurement. I’m just going to drag you into a little bit of jargon here, but it’s really important that when you do have a chat to the mortgage broker, you understand what your HEM is, because you know she’s going to ask you about that. Your Housing Expenditure Measurement — what is your cost of living?

When we go into a further video shortly about how the banks assess what your borrowing capacity is going to be, certainly your cost of living by marital status and postcode is really going to come into play.

Credit

This next one is a little bit like opinions — everyone’s got one. It’s your credit rating and your credit history. It’s really important that you’re being smart here. If you’ve had a debt collector come and knock on your door, that means you have neglected to pay a bill in some way, shape, or form, and your credit rating and credit history are going to take a massive dive. Obviously, don’t ever get to that point.

Certainly, if you do find yourself in any sort of financial stress and you can’t pay your bills on time, ring your financial institution and have that chat with them. Effectively, they won’t put you on the ban list as far as that goes. It will massively impact you if you’ve got a poor credit rating and credit history, you’re not going to get a loan any time soon.

Think about it. If someone came to you with poor money habits, a documented history, and they were asking you for $500,000, would you give them a loan? Put yourselves in the bank’s shoes.

Capacity

And the last one, which is super important, last but absolutely not least, is your capacity. This comes in two forms: capacity to borrow the money, and capacity to service the debt or pay off the loan. Borrowing the money in the first instance, how much you can borrow, and then your ability to make those repayments.

This is by far the one that we need to work on the most, because the majority of people come to us with enough money set aside, or a savings plan in place, to get to the point where they’ve got good deposit and costs. Those of you that are in the military have really good jobs, secure employment, and you can basically get a loan between 18 and 55, so you’ve got plenty of scope there as far as age is concerned.

Most people have good money habits. If you’ve got your RA or you’re living in your married order, your cost of living is super low anyway, and most people have a fairly decent credit rating and credit history.

Your ability to borrow the money and pay off the debt is the number one thing the mortgage broker needs to work on. Once you get all four of those put through, we are green lights and away we go. That’s going to be the best next step for you to get your loan approved, and let’s go and buy this next property.