Credit Guidelines Booklet Credit Guidelines Booklet Version 18-06 - Issued May 2018
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CreditGuidelinesBookletVersion 18-06 - Issued May 2018
Table of Contents
How to read the Credit Guidelines Booklet ............................................................................................ 4
Acceptable Loan Purposes ...................................................................................................................... 4
Excluded Loan Purposes ......................................................................................................................... 4
Equity Release/Cash Out ......................................................................................................................... 4
Eligible Applicants ................................................................................................................................... 5
Guarantees .............................................................................................................................................. 5
Acceptable Residential Security Properties ............................................................................................ 6
Unacceptable Residential Security Properties ........................................................................................ 8
Inner City and Restricted Postcodes ....................................................................................................... 9
Lenders Mortgage Insurance (LMI) ....................................................................................................... 10
Minimum Employment Periods ............................................................................................................ 10
Income Requirements and Verification ................................................................................................ 10
SALARY (PAYG) (FULL TIME AND PART TIME) ............................................................... 11
CASUAL OR CONTRACT EMPLOYMENT .......................................................................... 13
BONUS PAYMENTS ................................................................................................ 13
OVERTIME ......................................................................................................... 14
COMMISSIONS .................................................................................................... 14
INVESTMENT INCOME (INTEREST AND DIVIDENDS) .......................................................... 14
SELF EMPLOYED (PERSONAL, PARTNERSHIPS, COMPANY, TRUST) ........................................ 15
RENTAL INCOME .................................................................................................. 16
AUSTRALIAN GOVERNMENT BENEFITS PAYMENTS ............................................................ 17
CHILD SUPPORT OR MAINTENANCE ............................................................................ 19
COMPANY CAR ..................................................................................................... 19
HOUSING ALLOWANCE ........................................................................................... 19
SUPERANNUATION INCOME (DRAWING ON INCOME NOT ON CAPITAL) ................................... 19
Income Exclusions ................................................................................................................................. 19
Borrowers Equity / Genuine Savings..................................................................................................... 20
Existing Mortgage Debt Repayments.................................................................................................... 20
Refinance of Existing Debt .................................................................................................................... 21
Serviceability Requirements ................................................................................................................. 21
First Home Owner Grant (FHOG) Policy ................................................................................................ 22
Vacant Land Loans ................................................................................................................................ 23
Construction Loans ............................................................................................................................... 23
Procedure and Documentation ............................................................................................................ 27
Serviceability Calculator Instructions .................................................................................................... 29
Serviceability Calculator Example ......................................................................................................... 33
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How to read the Credit Guidelines Booklet Advantedge Loan Provision Policy Loan provisions listed here apply to all lending under Advantedge Financial Services Residential Lending Program. These provisions must be adhered to for a loan to be funded by Advantedge Financial Services Pty Ltd ACN 130 012 930 Credit Representative 391202 (Advantedge). LMI Insurer Requirements On all applications for insured loans, specific LMI loan provisions must be adhered to for the loan to be approved by the LMI insurer. These provisions are in addition to any provision outlined for a loan to be funded by Advantedge. Full details of the LMI Provider policies can be obtained from their websites:
• QBE – https://www.qbelmi.com (then click on “lmiGUIDE”) • Genworth- http://www.genworth.com.au/lender/policy-and-process-information/underwriting-
guidelines If you are unsure of a particular credit guideline please contact your BDM.
Acceptable Loan Purposes Advantedge will consider a loan for any worthwhile purpose. Some exclusions are set out in the Equity Release/Cash Out policy and Excluded Loan Purposes policy. Where the facility is for investment purposes e.g. property, shares and other investments, the LVR must not exceed 90% (including LMI capitalisation where applicable).
Excluded Loan Purposes • Loans for business purposes or the refinancing of business loans (unless the business has ceased trading). • Loans to a trading business entity. • Loans for the repayment of any tax related debt. • Loans to repay director‘s loans. • Loans that are for the refinance of any loan that is currently in arrears. • Loans for the purchase of a business and/or goodwill (including investment in a business owned by a
related or associated entity to the borrower). • Loans that are for working capital or payment of personal or business tax liabilities.
Equity Release/Cash Out In addition to any LMI insurance requirements, documentary evidence is required where: • Loan to valuation ratio (LVR) exceeds 80%; OR • Equity Release / Cash out is > $250,000.
Where verification is required, documentary evidence must be provided and must verify at least 80% of the loan amount. Documentary evidence can include, but is not limited to, quotes, invoices, sale contracts, and written professional advice such as financial planner/adviser advice that supports the proposed use of the funds.
IMPORTANT: The amount and purpose of the cash out must be appropriate and in line with the applicant's financial position. Where LVR >80% cash out will be subject to LMI insurer requirements. All applications are subject to satisfactory Advantedge and insurer (where applicable) credit assessment.
Advantedge, at its sole discretion, reserves the right to reject or approve any request for equity release / cash out. In addition, Advantedge reserves the right to: 1. Limit the disbursement of cash out proceeds. 2. Control the disbursement of loan proceeds inclusive of cash out proceeds.
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Eligible Applicants Borrower Residency Borrowers, mortgagors, and guarantors must be one of the following AND reside in Australia: 1. Australian citizen; 2. Australian Permanent Resident; 3. NZ Citizen.
Corporate Entities 1. Registered Australian companies and subject to company taxation; 2. Trustee companies acting on behalf of trusts; 3. Partnerships.
For company applicants: 1. All Directors/Trustees/Partners must be Australian citizens/Permanent Residents/NZ Citizens AND reside in
Australia; 2. Guarantees from company directors are required; 3. Companies must not be in the process of deregistering, winding up or voluntary administration.
Guarantees Advantedge reserves its right to request a guarantee at any time. Full financial information is required from all guarantors in the same manner as required from borrowers. Guarantors may be required to obtain independent legal and financial advice to ensure they understand the terms of the Guarantee. In the case of non-English speaking applicants, the appropriate independent professional, in the borrower’s native language, should provide this advice.
A joint and several guarantee(s) will be required where: • The borrowers are individuals who wholly own and operate a private company (self-employed) and where
funds are raised on behalf of the company for its use. • The borrowers are individuals who wholly own and operate a private company (self-employed) where the
net profit or other income/add back items are included in the individual’s capacity test and are required to pass the test.
• The borrower is a private company other than a corporate trustee, all directors must provide personal guarantees. In the instances where directors act in a nominee position only (and are unwilling to provide a guarantee), formal documentation to this effect must be obtained from the borrower.
• A related company generates income which is relied upon to service the loan, guarantees from the directors of the related company are required.
• The borrower is trustee of a unit trust, each unit holder will be required to provide a guarantee. • A security provider is not a borrower the security provider must provide a guarantee. • The guarantor will be contributing towards the servicing of a debt, but is not also a borrower, they must
provide a guarantee.
Guarantee Requirements
Scenario Guarantee required?
Person offering property for other parties/ 3rd party mortgagors Loan is taken in company name and guarantee taken from directors as retained profits are used to determine serviceability.
Loan is taken in personal name and retained profits are used to determine serviceability. Applicant is sole director. Guarantee from the company is required.
Loan is taken in personal name and retained profits are used to determine serviceability. Shared directorship not party to loan
As instructed by Advantedge on specific scenarios
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Acceptable Residential Security Properties All loans must be secured by a mortgage that constitutes a first ranking charge over freehold land or Crown Leasehold land. Where a loan is to be secured by a mortgage over Crown Lease in Australia, that Crown Lease must not expire earlier than 10 years after the maturity date of the loan.
Acceptable properties are subject to the criteria as listed below, and any additional Lenders Mortgage insurance requirements (if applicable). Advantedge, at its sole discretion, reserves the right to reject or reduce exposure to any property or location submitted for consideration.
Advantedge will consider all security properties that meet Acceptable Security Property Requirements.
Properties must be zoned Residential or equivalent ^, providing it:
• has capacity to be used for residential purposes• can be marketed and sold as residential property within a normal time frame• is 50 square metres or greater (including balconies and car parking).
^Examples of equivalent can include, but not limited to: • Mixed Use Zoning• Residential properties where rezoning has not occurred• Commercial Zoned residences above a shop where the residence is on a separately issued title• Multi-story apartment complexes with shopping centres below and the residence is on a separately
issued title
Rural residential (or similar zoned) properties
Rural Property can be treated as Acceptable Residential Security if it passes the following Marketability Test: • The property is less than 10 hectares (25 acres) in size. This reduces to 2.2 hectares (5 acres or
22,000 m2) if there is no residence or dwelling on the property.• The property is located within 50kms of a provincial city with a population greater than 20,000
or within 20kms of a primary regional town with a population greater than 10,000 or within 10kms of NAB Store/Branch location based in NSW or VIC states only. (Note: Does not include NABAgency/Outlet).
• The property has the capacity to be used for residential purposes.• Power is connected to the property.• Water applicable to the area is connected to the property (ie tank, bore or town water).• The property is not a main source of income for the customer.• The property is or can legally be used for residential/rural residential purposes without specific
permit requirement.• The property is not a Rural Crown Leasehold.
When a rural property does not pass the marketability test, the security is to be treated as rural property. In these circumstances, a Home Loan Product can be offered up to a maximum LVR 70%, subject to the following criteria being met:
• Be less than 50 hectares (120 acres) in size• Property not generating (or be 'intended' to generate) gross trading income of more than
$20,000 per yearand
• Any debt servicing not being reliant on the trading income generated from the RuralProperty.
(Note: Where the Rural Property is leased to a third party, enquiries must be made to determine whether the third party generates or intends to generate gross trading income of more than $20,000 per year from the property). If the above income criteria are not met, the Rural Property cannot be accepted for any home loan lending purposes.
Units/ flats/ apartments
• Each must comprise an area of at least 50 square metres (includes balconies and car parking).
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Speculative Residential Security
Residential properties are considered speculative when they involve the following property types: • existing or not yet developed residential property where four residences or more are held
as part of a single development or
• land held for future residential development or sub-division into four lots or more.
Additional risks exist when security comprises multiple residences or lots in the same development and it may not be possible to sell all of them quickly and without a price discount.
Speculative residential property is not considered as Acceptable Residential Security Note: In exceptional circumstances a minimum DCA Level 3 may determine whether the properties can be classified as acceptable residential security. In determining the suitability of a property as acceptable residential security, minimum DCA Level 3 must consider all of the following issues and if approved, record as a policy exception:
• The proportion of residences/lots held in the development. If the residences/lots form a high proportion of the total development, will this adversely affect the Bank's ability to market and dispose of the properties quickly and without discount in the event that security must be realised? This risk increases with the size of the development.
• The nature and features of the development. Are there any specific or unique features that would limit the Bank's ability to sell the residences/lots individually or that would require a discount or extended sales period (for example, common or shared areas within the development, or remote location of the development)?
• Marketability of the residences/lots in the development. How strong is the demand for these residences/lots? Could the residences/lots be sold quickly at the same time, on an individual basis and without discount, or is the market such that a discount may be needed to sell the residences/lots together?
• The capacity of the customer to service or repay the debt other than from the short term sale of the properties Is a major part of the customer's repayment strategy the short term sale of some or all of the properties? Can the customer service or repay the debt from other income sources?
Restricted and inner city postcodes
• Properties located within Restricted Postcodes will be bound by the following LVR limits: - Restricted Postcodes Group A: Max LVR 70% for any loan purpose. - Restricted Postcodes Group B/Inner-city apartments: Max LVR 80% for any loan purpose.
• Where an inner-city apartment security property is located in a postcode listed in the 'Inner City and Restricted Postcode' list below, and is not owner occupied: - A maximum LVR of 70% will apply where there is no requirement for LMI cover. - Applications with a LVR >70% will require LMI cover, payable by the borrower.
Note: DCA Holder approval required to consider outside these requirements.
Serviced Apartments
A serviced apartment is an apartment that is approved and used for holiday and short term (generally less than three months) accommodation. Typically, serviced apartments are centrally managed and serviced and subject to a management agreement. In certain circumstances, serviced apartments can be considered normal 'residential apartments' with a copy of the management agreement required to be provided to consider the serviced apartment as Acceptable Residential Security. For Serviced Apartments to be treated as Acceptable Residential Security all of the following criteria are to be met:
• They are legally permitted for permanent residential use based on the zoning and planning regulations of the property.
• Minimum DCA Level 3 confirms they can be removed from the management agreement at any time and within a maximum of four months.
• Any applicant is not the principal, a director, or a shareholder of the company operating the management agreement.
• Advantedge (including valuers) can deal with the property in the normal residential property market, separate from the operation of the overall development in which the property is located.
If the above criteria are not met the Serviced Apartment cannot be treated as Acceptable Residential Security.
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Unacceptable Residential Security Properties
The following are considered unacceptable residential security and cannot be waived by any DCA Level, with the exception where prescribed property/security criteria are met, as per Acceptable Residential Security Properties.
• Student Accommodation.• Company Share Titles and Stratum Titles.• Owner-builder construction projects.• Mobile and kit homes (i.e. transportable properties).• Display homes• Community titles that are situated within Community Title Scheme (development) where lending
requested is to purchase vacant land and/or for construction purposes.• Rural Property• Speculative Residential Security• Serviced Apartments
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Inner City and Restricted Postcodes NSW VIC QLD SA TAS NT WA ACT
Inne
r Ci
ty
2000 2017
3000 3004 3006 3008
4000 4006 4101
5000 5001
0800 6000 6003-6005
Rest
ricte
d Po
stco
des
Gro
up A
4413 4415 4420 4455 4521 4581 4660 4674 4678 4680 4715 4717 4720 4737 4738
4740-4746 4800 4804 4805 4820
5600 5601 5608 5609 5725
7030 7155
7467-7470
0885 6390 6429
6436-6438 6440 6442 6642 6646 6710 6713 6714 6716 6718
6720-6722 6725 6728 6751 6753 6754 6758 6760
Gro
up B
2008 2019 2037 2067 2112 2118 2127
2140-2142 2144 2146 2150 2153 2166 2168 2194 2195 2199 2205
2208-2211 2220 2222 2566 2767 2769
3067 4010 4032 4102 4215
6100 6103
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Lenders Mortgage Insurance (LMI) Any loan greater than 80% LVR (subject to security location) must carry 100% Lenders Mortgage Insurance (’LMI’) as provided by a Lenders Mortgage Insurer nominated at the sole discretion of Advantedge. Lenders mortgage insurance companies approved by Advantedge are Genworth Financial Mortgage Insurance Pty Ltd (Genworth) and QBE LMI Mortgage Insurance Limited (QBE). Some conditions apply.
LMI and LMI approval is not required for loans where the LVR is ≤80%, unless the security property is located within an Inner City postcode and the loan purpose is for investment in which case LMI and LMI approval are required where the LVR is >70%.
The borrower is required to pay the LMI premium.
Advantedge will allow the LMI premium to be capitalised to the loan facility subject to: 1. The base loan facility amount must not exceed the applicable LVR limit; AND2. The total loan facility must not exceed the following LVRs:
a) 95% (including LMI capitalisation) for owner occupier purchase (including vacant land) on a principaland interest repayment type only, excluding construction.
b) 90% (plus LMI capitalisation) for all other owner occupier loans, including refinances on a principal andinterest repayment type only.
c) 90% (including LMI capitalisation) for investment and construction purposes.d) Where the borrowing relates to a top up on an existing owner occupied facility, the maximum LVR is
90%, excluding the portion of LMI which relates solely to the top up.
Advantedge’s Loan Submission Summary form and Application form must nominate that the borrower/s wish to capitalise the LMI premium to the loan facility. 1. Loan serviceability will be calculated on the total loan facility (including the capitalised LMI premium). The
Advantedge Serviceability Calculator must have a positive Cash Flow test result.2. The borrower’s notional repayment will be calculated on the total loan facility (including the capitalised
LMI premium).3. The total loan facility (including the capitalised LMI premium) must be repaid by the set maturity date.
LMI premiums cannot be refunded where loans are subsequently discharged.
Minimum Employment Periods For income to be utilised in Advantedge’s serviceability assessment, applicants must meet the minimum employment periods outlined below.
Employment Type Minimum Employment Period
Salary PAYG (Full Time and Part Time) No minimum employment term. Applicant must not be in probation period.
Probationary Employment Not Acceptable.
Casual or Contract Employment 6 months employment history.
Bonus Payments 2 years in current employment.
Overtime Same as PAYG.
Commissions Income Same as PAYG.
Self-Employed 2 years trading in the current business with full financial statements.
Employee Allowances Same as PAYG.
Income Requirements and Verification In accordance with your Responsible Lending obligations under the NCCP, you must verify all financial information provided.
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Salary (PAYG) (Full Time and Part Time) • One computer generated payslip with YTD showing at least 2 pay cycles*. The payslip should contain at
least:- Applicant's name;- Employer's name and ABN;- Pay period;- Gross and net income for pay periods and break up of income (base, overtime, leave loading);- Superannuation details;- Year to date (YTD) income details;
OR, if No Year to date (YTD) income details: • Two of the three most recent* computer generated payslips. The payslip should contain at least:
- Applicant's name;- Employer's name and ABN;- Pay period;- Gross and net income for pay periods and break up of income (base, overtime, leave loading);- Superannuation details;
OR • Three months bank statements or transaction listings from a financial institution, no older than 60 days as
at the application submission date, showing two employment income credits.
Note: If employment income deposit amounts are inconsistent and variance is <20% use lower figure, if >20% obtain payslip.
* Most recent must not be more than 60 days old as at application submission date.
Where above requirements cannot be met and the customer is a family member employed in a family business (includes customer's parents (including step and in-law), spouse, de-facto, grandparents, siblings, children, brother-in-law or sister-in-law, or legally appointed guardian), the customer's income can be confirmed by: 1. The most recent tax return (must be no older than 21 months), AND2. Validated ATO Notice of Assessment.
Note: Where the above acceptable verification documents do not appear representative of the occupation / industry, refer to DCA Holder to confirm acceptance of the income verification document amount to be used for debt servicing.
Additional Requirements when LMI is Required A company or business search must be undertaken and attached to the customer’s file, for all employers not listed on the Australian Stock Exchange and Government Departments. This may be performed via ABN Lookup.
Employee Allowances Employee Allowances which are received regularly and are not temporary or seasonal may be included as PAYG income.
Types of Allowances may be included in PAYG income can include (but not limited to): • Shift• Uniform• Laundry• Height• Meal• Site• GroomingWhere an Allowance is received regularly, consider whether the Allowance value fluctuates or is recurring.Only recurring allowance values are to be included as PAYG income. Recurring would typically be validated viaallowance income values being evident in 2 consecutive payslips. (Note: Where Allowance values areinconsistent and the variance is less than or equal to 20%, use the lower of the Allowance value).
An allowance must be treated as uncertain income and shaded by 20% where: • It can't be determined as recurring but are included in Year To Date (YTD) pay slip balances; OR• It has a greater than 20% variance between values; OR• The YTD amounts are combined with the Base YTD amounts and exceed the total PAYG YTD income.
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Note: Where allowances are provided to cover expenses such as tools or travel these expenses should be reflected in applicants living expenses.
Deductions Deductions do not require further enquiry to be made where servicing remains evident without adding back the deductions.
Deductions including salary sacrifice may be added back as gross income with individual tax applied where: • The deduction/s can be evidenced as a repayment being declared in the application (e.g. car lease or home
loan repayments not captured above); OR• Where deduction/s is part of declared general living expenses (e.g. meals card, parking); OR• The deduction/s can be verified as being cancelled.
These expenses must be verified and reflected in the customers declared general living expenses or repayment commitments and rationale/calculation documented appropriately.
By exception, where payslips are held a DCA holder may also consider the following:
Voluntary Super Contributions
• Add-back voluntary employee super contributions as taxable gross income where the customer/broker hasconfirmed that the contribution could be stopped if required to meet debt servicing commitments andbroker has documented this conversation. Care: employees within industries such as Defence may berequired to contribute a mandatory amount to superannuation depending on their scheme type, add-backsmust be identified as voluntary contributions.
Fringe benefit tax exempt income
For customers employed in the not-for-profit industry, public and not-for-profit hospitals, ambulance services or related FBT exempt registered employers:
Up to maximum $900 per month - Add-back of salary sacrifice deduction (up to a maximum of $900 per month) as tax free income.
Amounts above $900 per month- Further supporting evidence and calculations of the salary sacrifice income will be required
Note: Amounts contained within a FBT section in a PAYG summary are not acceptable as they are total grossed-up figures which may not correctly reflect net income available for debt servicing
HECs and HELP debts HECs and HELP debts are repaid via the PAYG taxation system and reconciled by the ATO in the individual's annual tax return each year. When a customer earns above the minimum income threshold their declared repayment percentage will be included in the PAYG income tax withheld by their employer.
In most instances the HECs percentage amount may already be included in their tax withheld amount; care should be taken when reviewing the attributed taxation amount so that it is accurately reflected.
The attributed taxation percentage and tax rates should be used to determine whether HEC's/HELP debts have been included in the customers Gross PAYG income tax withheld to ensure the correct Net income is used for the serviceability assessment.
Return to Work Income: Where income is being used to service a loan from a borrower that is returning to work within 60 days of the application submission date, a letter from the borrower's employer must be obtained. This letter must contain the following details: 1. Re-commencement date,2. Income details, and3. Employment status (i.e. Full Time, Part-Time).This letter must be on the employer's letterhead and signed by an authorised signatory.Examples of types of extended leave taken can include (but are not limited to): Career Break/Long ServiceLeave/ Parental Leave/Sabbatical.
Parental Leave Income:
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Where customer is about to commence Parental Leave or is currently on Parental Leave (and does not meet Return to Work Income requirements) PAYG Base Income (excluding Overtime, Bonus, Commissions, etc.) can be used where the following criteria are met:-
1. Permanent employee (i.e. not a casual)2. Has worked for employer for a minimum of 12 months; AND3. Will have primary responsibility for caring for the child during the parental leave period.
Requirements:• Ensure Responsible Lending (NCCP) requirements are met by noting on application that the customer has
Foreseeable Changes and detailing how they will make loan repayments over the leave period.• Input PAYG (Base) income values (excludes income types such as Overtime, Bonus, Commission, etc) based
on the customer advised intended return to work employment details after parental leave period expires(e.g. Full Time, Part Time, Hours per week)
Applicants must be able to demonstrate the ability to meet loan repayments during the Parental Leave period.
Example: Customer is presently Full Time and intends to return to employment as Part Time (3 days a week): Verify 60% of the current Base PAYG income value and record how customer is going to meet debt servicing commitments over the period of parental leave, in addition to the loan contract term.
Casual or Contract Employment • Payslip, not more than 60 days old as at the application submission date, reporting greater than 6 months
YTD figure; OR• Where Payslip YTD reports a figure less than 6 months, Payslips, PAYG Payment Summary or Personal Tax
Return for the last financial year; OR• Six months bank statements or transaction listings from a financial institution, no older than 60 days as at
the application submission date, showing regular employment income credits.• When entering income into the Serviceability Calculator, you must:
- Calculate and input the average monthly casual or contract payments received for a minimum of themost recent 6 month period; AND
- Document how you calculated the average monthly Casual or PAYG Contract income
Defence Force Reserve Income When entering income into Serviceability Calculator, you must: • Calculate the average monthly defence force reserve income received for a minimum of the most recent
six month periodAND
• Document how you calculated the average monthly Defence Force Reserve
• Customer’s Income must be confirmed via one of the following:- A bank statement(s) and transaction listings evidencing income for a period of at least six months
payments; with the most recent bank statement or internet banking transaction listing no older than60 days as at the application submission date.
- Payslip, not more than 60 days old as at the application submission date, reporting greater than 6months YTD figure;
- Where Payslip YTD reports a figure less than 6 months, Payslip/s from the last financial year or aletter/statement from the Defence Force Reserves no older than 60 days as at the applicationsubmission date, detailing the customer's name and the income amounts received over the past 6months (ie. this income is tax free and a PAYG Summary is not issued).
Bonus Payments • Acceptable providing received for the most recent two financial years, with the lesser of:
- average bonus payment received over the most recent two financial years; OR- the most recent financial year bonus.
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• Bonus payments must have been received for the most recent two financial years and verified by anycombination of:- Bank statement(s) and transaction listings that evidence receipt of the bonus payments for the most
recent two financial years (Note: Only the pages evidencing the payments are required, not the full twoyear period); OR
- Using Payslip with details of bonus payments received; OR- Payment summaries or reward statements issued by the employer or tax returns form the two most
recent financial years which evidences total income above the customers calculated base salary; OR- Signed letter from the employer detailing the bonus payment amounts paid over the most recent two
financial years.• The serviceability calculator will shade after-tax Bonus Income by 20%
Assessors must: • Calculate and input the total bonus payments received for a two year period; AND• Document how they calculated the total bonus payments.
Overtime • Must be confirmed as being:
- within the nature of the applicant’s employment,- regular, AND- has been received for a minimum of the most recent six months.
• Overtime payments must be verified by:- Payslip YTD figure representative of minimum of six months; OR- Where Payslip YTD reports a figure less than 6 months, obtain Payslip/s, PAYG Payment Summary,
Personal Tax Return for the last financial year or a signed contract of employment or letter of offer thatspecifies regular overtime as a condition of employment.
• The serviceability calculator will shade after-tax Overtime by 20%
Assessors must: • Calculate and input the average monthly overtime received for a minimum of the most recent six month
period; AND• Document how they calculated the average overtime.
Commissions • Must be confirmed as being:
- within the nature of the applicant’s employment;- regular; AND- has been received for a minimum of the most recent six months.
• Commission must be verified by a minimum of 6 months commission receipts as evidenced in:- Payslip YTD figure representative of minimum of six months; OR- Where Payslip YTD reports a figure less than 6 months, obtain payslip/s, PAYG Payment Summary,
Personal Tax Return for the last financial year or a signed contract of employment or letter of offer thatspecifies regular commission as a condition of employment.
• The serviceability calculator will shade after-tax Commission by 20%
Assessors must:
• Calculate and input the average monthly commissions received for a minimum of the most recent sixmonth period; AND
• Document how they calculated the average commissions.
Investment Income (Interest and Dividends) • Acceptable providing:
- shares are publicly listed on the ASX or Managed Fund is managed from Australia (e.g. MLC); OR- if the investment income is from shares held in a private Australian company and is evidenced as
income received;
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Note: DCA Holder approval required to consider this income in debt servicing assessment.
AND - investments are current at the time of application and are included in the application form.
• The calculator will shade after-tax Investment Income by 20%. Where any of the investment is beingredeemed to use as equity in this transaction then income is not deemed acceptable.
• Verification documentation may include any one of the below:- A Shareholding certificate or current dividend statement or notice- Managed Fund current statement or notice- A Letter from a NAB financial planner- A Bank statement or internet banking transaction listing that identifies at least two direct credits as
investment income.- Share Registry advice- Term Deposit certificate- The most recent tax return (must be no more than two years old and either prepared by a tax agent or
containing evidence of lodgement to ATO)• Verification documents (excluding bank statements and transaction listings) must confirm the name of the
publicly listed company in which the investment is held, the specific name and type of investment held, thename of at least one of the customers.
• Income from shares held in a private Australia company or Discretionary Trust must be verified against oneof the following:- 2 years tax returns with the most recent tax return no more than 2 years old and either prepared by a
tax agent or containing evidence of lodgement to ATO;- Credits to NAB account, bank statements or transaction listings no older than 60 days old showing 2
years of income.
Note: DCA Holder approval required to consider this income in debt servicing assessment.
Self Employed (Personal, Partnerships, Company, Trust) Self-Employed customers are defined as: • Sole traders or 'proprietors'• Traders as part of a business partnership• Company directors who also own shares in the company:
- either personally or in the name of spouse / defacto; OR- through a company or company/trust structure (ie a self- employed business operated through a
company structure).• Trust Beneficiary (ie: Unit Trust)• Discretionary Trust (ie: Trustees and/or beneficiaries of a trust)
Note: DCA Holder approval required to consider outside these requirements.
Note: If a company within the group is not included in the flow of funds from business source to customer (for income or debt-servicing), financial statements are not required for this entity.
For Self Employed customers Advantedge requires: • Applicable personal, partnership, trust and/or company taxation returns for the last two financial years,
together with the most recent Australian Tax Office Assessment Notices (refer Taxation Returns below); OR• The last two financial years Accountant Prepared (Reviewed or Compiled) or Audited balance sheet and
profit and loss statements.
Note: Financial details are acceptable for 21 months from the end of the relevant financial period e.g. 2015/16 financial details will be acceptable until 31st March 2018. From 1st April 2018, 2016/17 financial details will be required. Advantedge reserves the right to request further information including statements from Accountants.
Interim statements, cash flow and profit projections will not be considered. Recently-formed businesses or companies which cannot produce an income tax return for at least the previous full financial year will not be considered.
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Taxation Returns: Where Taxation Returns are provided, the most recent Income Tax Return (ie: one only) must be validated against: • ATO Assessment Notice (which may include Notice of Assessment for Individuals, ATO Portal - Itemised
Account (Income Tax Account) for Companies); OR• Evidence of the ATO Lodgement Notification where an ATO Assessment Notice is yet to be obtained.
Serviceability Assessment:• The income figure to be used (provided from last two financial years) for serviceability assessment must be
calculated using the following methodology:Where the income in the latest financial year has increased by less or equal to 20% compared to the -previous year – the latest financial year's income amount. Where income in the latest financial year has increased by more than 20% compared to the previous-year – 120% of the previous year's (year 1) income amount.Where income in the latest financial year has decreased compared to the previous year – the latest-financial year income amount.
• Serviceability of any proposed or existing commitment/s must be evident from the net taxable income.• Income evidence must demonstrate consistent income levels for the two years under review.• Loan applications with LVR greater than 80% must comply with LMI policy.
Acceptable Add-Backs: The following are deemed acceptable add-backs for self employed applicants: • Directors'/Partners' salaries (if not used separately in servicing calculations);• Interest on any loan facility that is being refinanced as part of the application;• Superannuation (where amount is greater than current Government requirements);• Non-recurring expenses;• Depreciation expenses are an acceptable add back to net income as an untaxed item. At the discretion of
Advantedge, depreciation add-back may be reduced or be deemed unacceptable. Advantedge reserves theright to request further information on the depreciation expense such as requesting the provision of adepreciation schedule. Prudent lending standards as well as common sense should determine ifdepreciation is appropriate or should be reduced;
• Loan applications with LVR greater than 80% must comply with LMI policy.
Note: A letter from accountant certifying accounts may also be required.
Rental Income Advantedge will take into account rental income in determining loan serviceability. The rental income used in the credit assessment must be the lower of: • the rental income amount based on provision of the following documentation; OR• 6% of the market value of the property (residential property only).
New Property Purchase:• Copy of the current executed lease agreement; OR• Market appraisal contained in a sworn valuation dated within 60 days of the application submission; OR• Market appraisal from a registered real estate agent dated within 60 days of the application submission.
The rental figure used must be the lesser of the rental appraisal, executed lease agreement, or market appraisal.
Lease agreements and sworn valuations must confirm the property owner, address of the property, frequency and amount of rental income or prospective rental income.
Market appraisals from a registered real estate agent do not need to be addressed to the customer or property owner, however must be on the agent's letterhead, and state the property address.
Existing Property: • Copy of current executed lease agreement (can include a Contract of Sale - Rental Schedule); OR• Copy of rental receipt issued by the real estate agent that is not more than 60 days old showing 4 weeks of
rental payment. The rental receipt must be issued on a real estate agents letterhead and detail theproperty owner and address; OR
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• Bank Statements or transaction listings no older than 60 days showing at least 2 direct credits. In all casesthe credit must either display the property address or real estate agent name in the narrative.Note:
Where it is known there is a private rental agreement in place, rental income must be demonstrated -over a minimum of two month period, regardless of frequency of the payments;
- For Existing Rental where direct credits are known to include expenses discounted prior to paymentbeing made, a secondary acceptable verification document which states the actual gross payment maybe utilised for debt servicing assessment purposes
OR • Rental property schedule contained in current tax return. Must be no more than two years old and either
be prepared by a tax agent or contain evidence of lodgement with the ATO. ^
^ Use of tax returns retained especially for complex transactions from astute investors. Allows assessors to evidence that applicant is receiving rental income over a longer period of time.
For residential holiday or short term rental income, rental income must be calculated based on: • Calculate Gross Rental income for a minimum period of 12 months, based on:
- Rental payments to bank statement, with most recent receipt within 60 days of application submission;OR
- Rental agent receipts, with most recent statement within 60 days of application submission; OR- Rental property schedule contained in current tax return. Must be no more than two years old and
either be prepared by a tax agent or contain evidence of lodgement with the ATO.• Brokers must manually apply 80% of gross rental income to calculate adjusted gross rental.• Enter adjusted gross rental in Advantedge Serviceability Calculator.
Note: Rental income derived where the residential property is not rented to a tenant for sole use of the entire dwelling (for example, renting out individual rooms or board) is not acceptable. Self-contained ‘granny flats’ are considered a separate dwelling. The serviceability calculator uses 80% of rental income in its calculation.
Australian Government Benefits Payments The Australian Government regularly makes changes to eligibility criteria for Government payments. The below table sets out the payment types and debt servicing assessment approach to be applied, along with providing guidance on payments that cannot be considered for debt servicing.
Due to the Department of Human Services varying eligibility criteria and means testing associated with some payments, applications containing government payments may need to be referred to a DCA holder to consider: • Each customer’s individual circumstances and overall strength of their application (including assets,
liabilities and , consistency and reliability of all income including government payments);• Impacts that the proposed transaction may have on their government payment (particularly in relation to
income and asset testing);• The intended duration of the payment and its availability to rely on for the term of the loan; and• Our responsible lending obligation to ensure that the loan is not unsuitable.
There are certain payment types that, when being used for debt servicing assessment purposes must be referred to an appropriate DCA holder for a full review, before a customer is provided an outcome on their loan – see below for requirements
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Australian Government Benefit Payments
Pension Type Debt Servicing Assessment
Aged Pension
Eligible
Veteran Affairs Pensions Disability Pensions– exempt from asset/income test ( i.e. Permanent Blindness) Widow Pensions Supplement Payments (related to pensions above) Family Tax A (Single/Couple) Eligible when:
• Customer advised age of child is before their12th birthday
• Family tax income is not predominant source(ie more than 50%)
• Note: Pro Rata amount can be used for number of eligible children where benefit is paid for multiple children but not allmeet eligibility requirements.
Family Tax B (Single)
Family Tax B (Couple) Eligible when: • Customer advised age of Child is before
their 9th birthday• Family tax income is not predominant source
(ie more than 50%)• Note: Pro Rata amount can be used for number of eligible
children where benefit is paid for multiple children but not allmeet eligibility requirements.
Family Tax (outside above criteria)
• Applications inclusive of these payments typesmay be considered by a DCA holder whenassessing the customers individualcircumstances due to the eligibilityrequirements set out by AustralianGovernment – Department of Human Services(refer above)
All Other Disability Pension
Sickness Allowance Other Pensions Family Tax (outside above criteria) Carers Payments Supplement Payments (related to Payments) Foster Care Payments Parenting Payment Other Government Payments Newstart Not acceptable for debt assessment purposes Austudy
Income can be considered when: 1. Is regular and of consistent amounts; AND2. Has been received for a minimum of the most recent six months; AND3. It can be verified in accordance with the below verification documents:
• Bank statement(s) showing six months of consecutive income credits:- The most recent bank statement or internet banking transaction listing no older than 60 days as
at the application submission date, the narrative of the direct credit must clearly identify that ithas been paid by the government authority/government agency.
• A letter or statement from the government authority /government agency making the payment that isno older than 60 days as at the application submission date, detailing the customer's name and theincome amounts received over the past 6 months.
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Assessors must: • Calculate and input the average monthly government allowance received for a minimum of the most
recent six month period; AND • Document how they calculated the average monthly government allowance.
Child Support or Maintenance Acceptable providing: • the Maintenance Agreement/Child Support Assessment is registered with the Child Support Agency; AND • a minimum of six continuous months of payments have been received and can be verified via the
customer's bank account statements not older than two months; AND • It is considered permanent for the next 5 years; AND • It does not represent the predominant income source of the application.
The lower of the amount stated in Maintenance Agreement/Child Support Assessment or monthly average received for the most recent six months should be used.
Assessors must: • Calculate and input the average monthly child support or maintenance allowance received for a
minimum of the most recent six month period; AND • Document how they calculated the average child support or maintenance allowance.
Company car • Car allowances – Where allowance is fixed/recurring, verifiable and not discretionary it may be included in
PAYG income. The allowance should be verified using applicant payslips, or where this is not possible, via a letter from employer stating allowance is permanent.
• Packaged Car – Treat packaged cost as gross income. Packaging should be verified using applicant payslips, or where this is not possible, via a letter from employer stating packaging.
• Note: No income will be accepted which is associated with a fully maintained company car.
Housing Allowance Must be provided by employer or Government department and verified via applicant payslips / letter from employer confirming allowance or benefit statement from Government.
Superannuation Income (Drawing on income NOT on capital) Acceptable providing: • It is from Guaranteed Superannuation Income Scheme, Guaranteed Annuity Income Scheme, Defined
Benefit Income Scheme, or Defined Death Benefits Scheme; and • The customer is presently drawing income from their superannuation fund scheme at the time of
application. • Verified via a Letter from employer detailing salary packaging or Statement of superannuation benefit.
Income Exclusions The following income sources are specifically excluded for serviceability purposes: • Unemployment benefits; • Study benefits; • Sickness benefits; • Carer’s benefits; • Workers compensation or similar; • Income Protection Insurance or similar; • Income from boarders, tenants or dependants residing in the same property as the applicant, unless it is
declared on the borrower’s taxation return or evidenced by formal residential tenancy agreement.
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Borrowers Equity / Genuine Savings The minimum borrower's contribution to the purchase of a property should be 5% of the purchase price plus purchase costs. Where LVR > 90%, the borrower's equity must be verified as "genuine" when Lenders Mortgage Insurance (LMI) applies.
Genuine savings must have been acquired over a minimum period of 3 months. Acceptable forms include: • Equity in the residential property security or any other residential property • Funds accumulated in a savings account • Shares held as verified by a share certificate or holding statement • Term Deposits • Rental repayment history must be demonstrated over minimum 6 month period, verified via a Letter from
the Registered Real Estate Agent detailing the following: - Full Name of tenant/s - Address of the tenanted property - Commencement date of tenancy - Amount of rent paid per cycle (e.g. weekly, fortnightly, monthly) - Confirmation of acceptable rental repayment history (i.e. no missed payments)
Note: Borrowed funds or the sale of motor vehicles are not acceptable sources of genuine equity.
If the equity is being provided from the proceeds of a property sale, the Contract of Sale for property providing the equity must be provided. Details of loan amounts outstanding should also be advised so that the ability to complete the transaction (inclusive of Government statutory charges) can be assessed.
Disclosure of equity contributions comprising the following is required: • Gifts • Inheritances; AND • First Home Owners Grant (FHOG)
Where equity includes gifted funds, Advantedge must be advised of the relationship between the provider and the borrower and whether the gift is repayable in the loan application. Where the gift is repayable, the terms of repayment must be advised and included in servicing calculations.
Existing Mortgage Debt Repayments Loan repayment amount/s on existing mortgage debt/s external to Advantedge (excludes debt to be paid out or refinanced) must include the following information: 1. Loan limit 2. Interest rate 3. Expiry date OR remaining period of loan term (excluding Line of Credit facilities) 4. For interest only loans: expiry date OR remaining period of interest only period
Items 1) Loan limit and 2) Interest rates must be verified using one or any combination of the below that must not be more than 6 months old from application submission date: • Loan statement/s • Internet account summary • Internet transaction listing/s • Other document (e.g: loan contract)
Expiry Dates or Remaining loan term can be verified by: • A bank issued document where the account / reference number can be reconciled with any of the above.
Examples include (but not limited to): Loan statements, Internet account summaries, Transaction listings, Loan contracts, Drawdown letters etc; OR
• When serviceability has been assessed based on a customer advised loan term of up to a maximum of 20 years (eg: If the customer has advised the remaining loan term is 15 years, then this term must be used for assessment purposes)
Note: Where the above documents do not capture necessary information another document type (e.g. loan contract) can be used to verify requirements.
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Refinance of Existing Debt All debt external to Advantedge being refinanced must be verified. This includes:
• Refinanced Loans (excluding credit cards): Provide consecutive loan statements and/or transaction listings showing six months of loan conduct, no older than 60 days from the application submission date. - Note: Documents can be a combination of the above and must show a minimum of customer/s name,
loan account number and lender details (Issuer and/or customer name is not evident (eg transaction listings), document is acceptable when account number can be reconciled with another bank document which identifies both the issuer and the customer. While not exhaustive, some examples of acceptable documents include bank statements, internet banking screenshot, and bank drawdown letter. - Where a loan is refinanced, you must ensure that there is a benefit to the customer in doing so - See ASIC’s RG 209 Responsible Lending Guide for further details.
• Refinanced Credit Cards: Provide three consecutive months of statements for the card being refinanced. The latest statement must not be more than 60 days old at the application submission date. Only pages within the statement showing the customer’s name, card limit and card balance are required.
These statements should reveal satisfactory loan conduct including no evidence of the following: • Default/penalty interest; • Arrears/missed repayments/dishonours; • Legal costs; • Balances in excess of agreed limit; • Cancelled limits; • No more than two late payments, overdue fees or other penalty charges evident across all facilities.
Serviceability Requirements • When capturing customer expenses you must validate that general living and entertainment expenses
provided by the customer are realistic. If the customer advises that expenses are less than HEM you must make further inquiry to ensure customer/s declared living expenses are consistent with the customer/s circumstances and representative of their actual living expenses. The customer’s response must be recorded.
• All applications must include a completed Living Expense worksheet, and Household Expenditure Measurement (HEM) should be used to validate that general living expenses provided by the customer are realistic.
• A minimum $500 Board or Rental expense per month must be included where the customer will be living at Home/Boarding (including with non-spousal family/friends) /Renting (Including where disclosed amount is lower) post drawdown.
• You must use the Advantedge Serviceability Calculator to undertake a preliminary assessment of the borrower’s loan serviceability.
• Acceptable loans must have a positive Advantedge Serviceability Calculator result. • All new and existing (excluding debt/s to be paid out or refinanced) home loans are qualified using
repayment based on: - For Principal and Interest (P&I) loans – the Qualifying Rate on a P&I basis over the contracted loan term; - For Interest Only (IO) loans – the Qualifying Rate on a P&I basis over the P&I term at the expiry of the IO
term (i.e. contracted loan term less any IO term) - For other home loan facilities (i.e. Line of Credit) – the Qualifying Rate on a P&I basis over 30 years
• The qualifying rate used must be the greater of: - 2.25% p.a. above the effective borrower rate; OR - the serviceability floor assessment rate of 7.25% p.a.
• Where Gifts are repayable, these repayments must be included when calculating servicing. • Where customer advised expenses are less than HEM, the HEM value must be used for serviceability
assessment. • Where the applicant(s) have joint commitments with other parties who are not included in this application,
100% of the commitment is to be used in serviceability calculations.
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• Advantedge may consider including deductible interest when calculating servicing capacity for a loan application. Where this is applied, the following must be considered: - The amount of deductible interest to be used for servicing calculation must not exceed total taxable
income from all sources. - LMI insurer policies must be complied with where the loan application requires LMI cover.
IMPORTANT: The serviceability calculator serves as a guide only. Your responsible lending obligations require that you do not provide credit assistance where a loan is unsuitable. You must make your own assessment about each applicant's financial circumstances based on the reasonable enquiries you make.
First Home Owner Grant (FHOG) Policy FHOG availability and conditions vary from state to state with each Australian State and Territory having its own rules for eligibility. To determine the eligibility of applicants for FHOG you will need to go to each states website (links provided below).
Where Advantedge is to process a FHOG application, the following requirements must be met: 1. All FHOG applications must relate to the purchase or construction of an owner occupied dwelling and
therefore be regulated under the National Credit Code (NCC). 2. Advantedge will not process a FHOG application for a non- Code regulated loan. 3. Advantedge will process FHOG applications in accordance with Government requirements and regulations.
FHOG funds will be made available at settlement. 4. Where FHOG funds are not available for settlement and settlement is subsequently delayed, Advantedge
will not be liable for any costs, penalties or losses incurred by the borrower, as a result of the delay. 5. Where funds cannot be made available at settlement, Advantedge will cancel the FHOG application and
borrowers must make their own separate application to the State Revenue Office for grant funds. 6. At the discretion of Advantedge, an amount equivalent to the approved FHOG may be advanced from the
borrower’s approved construction loan for use at the borrower’s vacant land settlement. To qualify the borrower must be a First Home Buyer who qualifies for the government grant and is purchasing vacant land and will obtain construction lending approval prior to land settlement.
7. Advantedge must apply for the grant on behalf of the borrower and therefore the original executed documents must be supplied to Advantedge for processing.
8. Approval from the relevant government body must be held at least three days prior to the vacant loan settlement. Where approval is not provided, Advantedge will not advance funds and the borrower may need to provide additional funds to settle the vacant land.
9. Borrowers must complete and execute the “Authority to use FHOG for payment towards construction costs” form for this feature to apply. This completed document must be supplied with the loan credit package documents.
10. Upon the first progress payment, the grant will be released from the government body and credited to the construction loan to ensure adequate loans funds are held to meet construction costs.
For more information please refer to the FHOG Fact Sheet & FAQs
An extensive list of FHOG requirements, particular to each State or Territory of Australia, can be downloaded from the below state based websites: • Australian Capital Territory: www.revenue.act.gov.au/home-buyer-assistance/first-home-owner-grant • New South Wales: www.osr.nsw.gov.au/grants • Northern Territory: www.treasury.nt.gov.au/TaxesRoyaltiesAndGrants/Pages/default.aspx • Queensland: https://greatstartgrant.osr.qld.gov.au/ • South Australia: www.revenuesa.sa.gov.au/ • Tasmania: www.sro.tas.gov.au/ • Victoria: www.sro.vic.gov.au/ • Western Australia: www.finance.wa.gov.au/cms/State_Revenue/FHOG/First_Home_Owner_Grant.aspx
First Home Owners Grant for Construction Loans • FHOG proceeds are not available to fund vacant land. FHOG will only be released during construction. • At the discretion of Advantedge, an amount equivalent to the approved FHOG may be advanced from the
borrower’s approved construction loan for use at the borrower’s vacant land settlement.
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• To qualify, the borrower must be a First Home Buyer who qualifies for the grant and is purchasing vacant land and will obtain construction lending approval prior to land settlement.
For more information please refer to the FHOG Fact Sheet & FAQs
Vacant Land Loans • Vacant land loans are available to purchase land for either owner occupied or investment purposes. • The maximum LVR is 95% (including LMI capitalisation). • Vacant land finance is only available on the variable rate product. • The valuation will be for the vacant land only on an 'as is' basis. • Advantedge offers no guarantee that it will approve further requests for additional funds in the future and
requires full credit information to be provided for any requests for additional funding. • Where existing loans/securities change to vacant land by either substitution of securities or subdivision of
land, vacant land/construction conditions apply. Where the loan is not re-documented, the Borrower's Guide to Vacant Land and/or Construction Funding must be issued to the borrowers.
• No redraw of additional payments or available credit permitted via direct card for vacant land term loans. • FHOG proceeds are not available to fund vacant land. Refer to FHOG Policy in this guide.
For further details refer to the Vacant Land and Construction Loan Fact Sheet
Construction Loans • Construction loans are available to purchase land, build a residential property or renovate a residence for
either owner occupied or investment purposes. • The maximum LVR is 90% (including LMI capitalisation). • Construction finance is only available on the variable rate product. • Construction finance is not available to Owner Builders. Note: DCA Holder approval required to consider
outside these requirements. • Split contract, costs plus contracts and any building contract that allows progressive payment for
construction beyond work completed (e.g. Simple Works Contract) are unacceptable. • Construction must commence within 12 months of loan settlement. • Construction must be completed within 12 months of the first progress payment. • No redraw of additional payments or available credit permitted via direct card during construction period. • Before any construction loan approval, all relevant construction documents as outlined below must be
provided with the loan credit package.
(a) Before loan approval Before loan approval is provided for vacant land/construction loan, Advantedge requires: • A copy of the Fixed Price Building Contract executed by all parties.
Fixed Price Building Contract - The Fixed Price Building Contract must be a valid and enforceable contract and include any
additional costs. Tenders and quotations are not acceptable. - The contract must include the builder’s name and registration/licence details. These should be
consistent with what is included on the Council Approved Plans and include the correct property address.
- The contract must specify the fixed price or costs for each progressive stage of construction and whether GST is included.
- The contract must include any variations that have been agreed to by all parties. This should be provided to Advantedge Lending Services department at loan approval stage.
- Any alterations following approval should be given to Advantedge Customer Care prior to the drawdown of any progress payment funds or together with the first progress payment request.
(b) Prior to the first progress payment Advantedge requires the following documentation be provided to satisfy the Construction Conditions prior to the first progress payment:
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• A copy of the stamped Council Approved Plans and specifications; • A copy of the Builders All Risk Insurance Policy, which covers the builder for fire and storm damage
whilst the property is under construction; AND • Home Owner’s Warranty Certificate.
Note: There is no need for a copy of the Builder’s Registration Certificate to be provided. Advantedge will confirm the builder’s registration internally by performing a search on state government websites which contain up-to-date information on the builder’s registration. Advantedge reserves the right to request a copy of the Builder’s Registration Certificate if required.
Council Approved Plans - The construction plan must have an approval from the relevant Council to build the property or a
permit issued by the Council for the builder to build the property. - The approval stamp must be legible and the approval must show the correct property address
and be for the type of building nominated (house unit etc.). - This should be provided to Advantedge Customer Care prior to the drawdown of any progress
payment funds or together with the first progress payment request.
Builders All Risk Insurance - The amount of cover should be:
• at least for the amount of the Fixed Price Building Contract; OR • equal or greater than 80% of the Estimated improvements/Replacement Value on
Completion (i.e. where estimated improvements or replacement value vary, utilise whichever is higher).
It should include the address of the property or it may provide State or Australia wide coverage. - Where possible it should note the correct names of the borrowers and AFSH Nominees Pty Ltd
(for loans submitted from 31 January 2011) or Perpetual Trustees Victoria Limited as an interested party/mortgagee.
- This should be provided to Advantedge Customer Care prior to the drawdown of any progress payment funds or together with the first progress payment request.
- If the policy is provided on insurance broker’s letterhead, in addition to the above, the following pieces of information are required: • Start date and expiry date of policy; • Stated policy number; • Name of builder; • Insurer who is underwriting the policy. Insurer must be acceptable to the Bank, refer to the
Australian Prudential Regulation Authority's list of Insurers Authorised to Conduct New or Renewal Insurance Business in Australia;
• Certificates must be printed on a broker’s letterhead with appropriate contact details and ABN noted;
• Hand-written certificates of currency are unacceptable.
Note: Advantedge reserves the right to request a copy of the Builder’s All Risk Insurance Policy on Insurance Underwriter’s letterhead for any cause that arises for this to occur.
Home Owner’s Warranty Certificate (H.O.W.) - The H.O.W. Certificate must show the correct borrowers’ names and the address of the security
property. - It must be for an amount not less than the Fixed Price Building Contract including variations. This
should be provided to Advantedge Customer Care to the drawdown of any progress payment funds or together with the first progress payment request.
Note: Home Owner’s Warranty is not the same as Builders All Risk Insurance Policy. This warranty protects the owner against faulty workmanship for approximately 6-7 years – refer table below.
VIC H.O.W. endorsed by HIA 6-7 years NSW H.O.W. endorsed by HIA 6-7 years QLD H.O.W. endorsed by BSA 6.5 years NT H.O.W. included in annual TIO insurance policy
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SA H.O.W. endorsed by HIA 5 years WA H.O.W. endorsed by HIA 6 years ACT H.O.W. endorsed by HIA 5 years
(c) Progress payments Advantedge Customer Care administers all progress payment requests. All payment requests must be lodged with Advantedge Customer Care no later than 3pm Melbourne time, two business days prior to the requested payment date. When requesting a progress payment the following information is required: • A valuer's certificate (inspection report) confirming the stage of works completed and a ’cost-to-
complete’ figure; • The builder’s progress claim (or invoice), showing the stage of construction that is being claimed or a
copy of the builder’s receipt if the claim has already been paid. The claim should include the builder’s banking details including the account name, BSB, and account number; AND
• An Authority to Pay signed by all borrowers. The Authority should include any request to pay valuer's inspection fee.
(d) At final payment The final progress payment can only be advanced when Advantedge has received: - Valuer's certificate (inspection report) which confirms that the property is finished with ’NIL’ works
to complete; - Final Council approval certification (occupancy permit) - WA excluded; - General fire insurance policy for an amount not less than that stated in the valuation report AND
which notes AFSH Nominees Pty Ltd (applicable for loans submitted from 31 January 2011) or Perpetual Trustees Victoria Limited as the interested party or mortgagee;
- The builder’s progress claim (or invoice), or a copy of the builder’s receipt if the claim has already been paid; AND
- An Authority to Pay signed by all borrowers, which should be retained on the Customer(s) file.
Where there are surplus funds remaining at the completion of construction Advantedge, subject to the borrower’s request, will pay these surplus funds: - Directly into the borrower’s nominated bank account (the one used for making repayments); OR - Retain surplus funds as redraw in the borrower’s loan account.
Settlement Funds Once Advantedge requirements have been met, loan funds will be provided at settlement as follows: 1. Where the loan amount is solely for the purchase of the land Advantedge will release the approved loan
facility amount. 2. Where the loan is for the construction of a property and the loan amount is more than the Fixed Price
Building Contract Advantedge will retain the full amount of the contract including variations. 3. Where the loan amount is for the construction of a property and the loan amount is less than the Fixed
Price Building Contract Advantedge will retain the loan amount. 4. Where deposits have been paid Advantedge may release up to 5% of Fixed Price Building Contract – see
Special Condition section above. 5. Where works have commenced Advantedge will release funds towards works completed to date, retaining
cost to complete. Documentation noted below under “Progress Payment Procedure” must be provided to Advantedge Customer Care.
Special Conditions 1. Funds are provided by progressive advances, and are released on a ’cost-to-complete’ basis. Where
Advantedge is not providing all of the funds to complete construction, the borrower’s funds must be used first.
2. Construction properties should have their own separate Certificate of Title. Where multiple dwellings are being constructed and subdivision/strata title is not affected until completion this must be noted in the valuation and the figures provided by the valuer must reflect the ’in-line’ value of the property i.e. the value prior to the subdivision/strata title.
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3. Advantedge will allow a maximum amount of 10% of the Fixed Price Building Contract amount to be paid prior to the commencement of any construction works. - Funds can be paid direct to the builder where the builder acknowledges that the funds form part of the
Fixed Price Building Contract. - Funds can be made available at land settlement where a deposit has already been paid to the builder.
The builder must provide Advantedge with an acknowledgment to this affect. 4. All payment requests must be lodged with Advantedge Customer Care no later than 3 pm Melbourne time,
two business day prior to the requested payment date. 5. All payments are made payable to the builder, unless otherwise authorised. Payments cannot be made to
third parties. Payment will be banked directly into the builder’s nominated bank account. Advantedge Customer Care must be provided with the builder’s banking details including; account name, BSB and account number.
6. The usual number of progress payments is five, however additional payments are allowed. 7. Where the works are completed by registered builders two progress inspections are usually conducted.
These usually occur: - When the first progress payment is requested;
(Note: Preparation, Deposit and Base stages cannot exceed 20% of total building contract costs); - When the final progress payment is requested.
(Note: Completion/Final stage must represent a minimum 10% of the total building contract costs). Each valuer’s progress inspection report must outline a ’cost-to-complete’ figure for the dwelling. Funds will be released in line with the valuer’s progress inspection report.
8. Progress inspection fees can be, but are not required to be, paid to the valuer at the time the progress payment is made. Advantedge Customer Care must be provided with the valuer’s banking details including; account name, BSB and account number. Any fee payment will be deducted from the available construction funds, which may result in reduced funds available to meet the builder’s claim. The borrower is responsible for any shortfall.
9. Borrower’s monthly repayment will be calculated on a pro-rata basis on the funds advanced to date and will comprise Interest-Only until completion of the building, when all funds have been advanced. Upon final progress payment the loan facility will revert to the Loan Product type selected.
10. Where the borrower requires a fixed interest rate option, a Loan Variation form must be completed after the final progress payment.
11. Where the borrower requires a direct card, a direct card application form should be completed after the final progress payment.
12. Where the loan facility is split and Advantedge Customer Care is providing all of the funds for the construction, the construction split portion must be equal to the full amount of the construction contract.
13. If there are any variations to the Building Contract, Advantedge Customer Care must be advised. The valuer must also be provided with full details of the variations for comment as to their effect on the valuation figure previously provided. No part of the construction can be completed on an ’owner-builder’ basis.
14. Construction must be completed within 12 months from the date of the first progress payment drawdown.
Construction Loans LVR Calculation LVRs are calculated by expressing the amount borrowed as a percentage of the security value. The security value for construction loans MUST be calculated using the following figures: • The lower of the land value shown on the valuation OR Contract of Sale; PLUS • The lower of improvement value shown on the valuation OR the Fixed Price Building Contract including any
variations.
Example: Contract/Purchase Price Valuation
Land $100,000 $95,000 Improvements $200,000 $210,000 Total $300,000 $305,000
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In this example the security value used by Advantedge to calculate the LVR is $295,000.
Construction and Renovation Loans The guidelines applicable to a construction advance are different to those that apply to a renovation advance. Construction will involve structural alterations to the property whereas renovations do not include structural changes to the property, and are usually of a cosmetic nature. • Examples of ’construction’ include extensions or additions to the security property, garages, permanent
outbuildings and in-ground swimming pools: a) Construction will require Council approval. b) Construction loans will be advanced by progress payments.
• Examples of ’renovation’ include cosmetic items such as minor repairs, landscaping, footpaths, painting, carpet, tiling and furnishings: a) Renovations do not require Council approval. b) Renovation loans, at the absolute discretion of Advantedge, may be advanced in a single lump sum to
the borrower.
Cessation of Building Activity • If a builder has ceased work at the site, Advantedge should be notified immediately. • A replacement builder must be engaged to complete the construction – completion cannot be done on an
’owner-builder’ basis. • The replacement Building Contract must be provided to Advantedge and to the valuer for comment.
Subject to Advantedge approval, progress payments will proceed as normal, on a ’cost-to-complete’ basis.
For further details refer to the Advantedge Vacant Land and Construction Loan Fact Sheet.
Procedure and Documentation Documents to be completed by applicant(s): • Application form containing:
- 100 point identification form - Privacy Notice and Consent form (in Advantedge’s approved format).
Documents to be provided with all applications: A Credit Package is required for each loan submitted to Advantedge. The term ’Credit Package’ refers to the minimum documents required by Advantedge to assess a loan. Credit packages must contain at least the following documents: 1. Loan Credit Package Checklist; 2. Signed Loan Purpose Checklist (only for loan variations submitted by Mortgage Manager and UBank
involving a change in loan purpose); 3. Signed and dated Application form (including the source of the customer’s deposit (initial or current) and
if it includes repayable advances or gifts from family or friends); 4. Copy of the Advantedge Serviceability Calculator with completed Living Expense worksheet. 5. Privacy Act Consent form, in a format approved by Advantedge, signed by all individual borrowers and
guarantors (this may be incorporated into the Application form); 6. Signed 100 Point Identification form and copies of identification documents (including confirmation of
current residential address);
Note: Re-Identification of Customer Re-identification of an individual/s executing as mortgagor is required where the execution date of the new mortgage is greater than 2 years since the last verifiable date (ie: Austrac, Photo ID stored on customer profile) In these instances, Brokers who establish or manage customer relationships must obtain evidence of a ‘Primary Identification documents with Photographs’ document to re-identify an individual/s executing as mortgagor/s
Following to be completed:
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Sighting the original 70 point Primary Identification documents with a photograph or a certified original copy and completing the 100 point identification form and attach to customer’s lending file including copies off the documents.
OR
Acceptance of the following 3rd party identification services – Advantedge Identity Verification Form completed via Australia Post. – Sighting the original and completing a VOI report via IDyou (excluding Facetime) – Sighting the original and completing a VOI report completed by ZipID (excluding ZipID mobile
representatives)
Note: When completing re-identification of a mortgagor and the mortgagor is unable to meet the Primary Photographic Identification requirements, brokers must obtain the equivalent point value of primary non photographic or secondary Government issued non-photographic
Supporting evidence is to be retained in all instances and minimum Delegated Commitment Authority Level 3 confirmation must be sought to accept this re-identification method.
No Exceptions to this standard are permitted.
7. Preliminary Assessment as required under NCCP (the Client Needs Analysis may be forwarded as an optional requirement);
8. Fixed Rate Authority Form signed by all borrowers when applying for a fixed rate loan. 9. Credit reference report(s); 10. Valuation report(s) (undertaken by a current Advantedge panel valuer); 11. Current ABN search for self-employed applicants; 12. Completed and original First Home Owner Grant Application form and supporting documents (if required); 13. For lending involving trusts: Certified copy of the original executed Trust Deed(s) (and any amendments)
with completed statement on the first page of the copy from originating party sighting the document; 14. Appropriate financial documents confirming evidence of income – refer to ‘Acceptable Income’ policy. 15. Income and Employment Verification form (only for Mortgage Manager loans); 16. Where the security is being purchased, a copy of the Contract of Sale, executed by all parties, (except NSW
and ACT where must have at least one party); 17. Copy of deposit receipt (only where deposit funds are required to complete the purchase or LVR > 80%); 18. Where the security property is already owned, a clear copy of title/title search or a copy of the council
rates notice; 19. Where LVR > 90% evidence of genuine equity – refer to ‘Borrowers Equity / Genuine Savings’ policy. 20. Where there are existing home loans not being refinanced, the following information is required:
1. Loan limit 2. Interest rate 3. Expiry date OR remaining period of loan term (excluding Line of Credit facilities) 4. For interest only loans: expiry date OR remaining period of interest only period
Item 1) Loan limit and 2) Interest rates must be verified using one or any combination of the below that must not be more than 6 months old from application submission date:
• Loan statement/s • Internet account summary • Internet transaction listing/s • Other document (e.g: loan contract)
3) Expiry Dates or Remaining loan term can be verified by: • A bank issued document where the account / reference number can be reconciled with any of
the above. Examples include (but not limited to): Loan statements, Internet account summaries, Transaction listings, Loan contracts, Drawdown letters etc; OR
• When serviceability has been assessed based on a customer advised loan term of up to a maximum of 20 years (eg: If the customer has advised the remaining loan term is 15 years, then this term must be used for assessment purposes)
Note: Where the above documents do not capture necessary information another document type (eg: loan contract) can be used to verify requirements.
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21. Where an existing loan is being refinanced, six months account statement(s) or transactions listings for the loan(s) being refinanced which are no older than 60 days at the date of submission.
22. Where an existing credit card is being refinanced, three consecutive months statement(s) of account for the card(s) being refinanced which are no more than 60 days old at the date of submission.
23. For a construction loan, a copy of the Fixed Price Building Contract executed by all parties; 24. Confirmation of loan purpose (if other than purchase or loan refinance); 25. Copy of Decline Advice where LMI has been declined by a mortgage insurer for instances where
Advantedge has approved a conversion of an insured loan to the uninsured loan program. 26. Authority to use FHOG for payment towards construction costs form completed and signed by all
borrowers when requesting the advancement of the FHOG equivalent from the approved construction loan for use at land settlement.
Note: Additional care must be taken with applications where a sale contract or transfer does not have a Real Estate Agent acting in the transaction. This additional scrutiny applies to the entire loan application, including the use of funds, and not solely the contract of sale. Things to look out for include: non-arm’s length transactions that may include transfers at inflated values; transfers disguising an existing credit impaired loan; or transfers to straw purchasers.
Serviceability Calculator Instructions
Advantedge Serviceability Calculator
The Advantedge Serviceability Calculator has been designed to enable a preliminary assessment to be made as to a borrower’s ability to service a Advantedge loan based on the requirements of Advantedge. The following information is provided to assist users with the operation of the program. BEFORE you use the program please make sure that: • your computer is set to English Australian, not English American • you ‘enable macros’ to ensure correct operation of the worksheet.
Serviceability tests The calculator computes loan serviceability calculations based on Cash Flow Test.
Entering data into the worksheet
Enter data only in the white boxes, and only use whole numbers for financial items. Shaded boxes do not require entries and may contain formulae that cannot be overridden. The items to be entered in the worksheet are as follows:
Data items – Loan Details
Applicant name Enter the borrower name exactly as shown on loan application.
Security value Enter the amount of the total value of all proposed securities, based on the anticipated or actual valuations.
Start date The start date will automatically be entered and will be the date that you are completing the calculator.
Loan applicant(s) household composition
No. of Adult Couples and/or Single Adults and No. of Children
Select from the drop down menu the number of Adult Couples and/or Single Adults applicable to the household and then enter the number of dependants for each Adult Couple and/or Single Adults. Entry of this data is mandatory.
Applicant(s) specified living expenses (per annum)
Click on the "Living Expense" button and ensure all details are completed. Refer to the next section for further details on how to complete. Note: where minimum living expense index is utilized, additional commentary is required.
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Living Expenses
Basic Housing & Property Expenses (Inc. Utilities)
Please select frequency of expense, enter an amount or provide justification on why the amount is low or nil.
Communications & Media
Food & Groceries
Recreation & Entertainment
Clothing & Personal Care
Medical & Health
Transport
Education& Childcare
Insurance
Other
Commitments – This Loan
Loan Number Enter loan number for this loan.
Loan Amount Enter loan amount for each loan split. The calculator will automatically calculate the repayment amount at the Qualifying Rate and the Effective Rate.
Effective Rate Enter the borrower interest rate. For split facilities ALWAYS enter the highest borrower rate.
Qualifying rate
All loans are qualified using repayment based on: • For Principal and interest loans – the Qualifying Rate on a Principal and Interest basis
over the contracted loan term; • For Interest Only loans – the Qualifying Rate on a Principal and Interest basis over the P&I
term at the expiry of the Interest-Only term (i.e. contracted loan term less any Interest Only term);
• For other home loan facilities (ie: Line of Credit) – the Qualifying Rate on a Principal & Interest basis over 30 years.
This field will automatically update once the effective rate has been entered. The qualifying rate used must be the greater of: • 2.25% p.a. above the effective borrower rate; OR • the serviceability floor assessment rate of 7.25% p.a. Advantedge assesses a borrower’s future ability to service a proposed debt at a higher qualifying interest rate that takes into account possible future interest rate increases
Interest Only Period Enter interest only period if the loan is interest only.
Commitments Other
From this loan The calculator automatically calculates the amount of annual repayments on all loans shown at the qualifying interest rate.
Other mortgages Enter the commitment amount(s) on the Other mortgages worksheet for repayments on all other home loans not being refinanced. Refer to Other mortgages.
Rent Enter any annual rental paid by borrowers who do not own their residence, and who will continue to pay rent after settlement of the proposed loan.
Hire Pur./Lease Enter the annual instalments on any hire purchase or leasing arrangements.
Personal loans Enter the annual instalments on any personal loans.
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Credit cards Enter an amount of 36% of the limit of any credit cards.
Other Enter the amount of any commitments not shown in any other boxes.
Data items – Income
Applicant name Enter the names of each income earner in each box – there are four boxes provided. Do not enter business names here – these should be entered under the company income section.
Gross annual income Enter the same amounts as they appear on the borrower’s current personal tax returns, PAYG Payment Summary, payslips, etc.
Gross Other PAYG Income Enter Overtime, Bonuses and Commissions. (Shaded 20% net of tax)
Rental income Enter the actual or estimated total gross rental income received from investment properties. Multiple boxes allow for the allocation of rental to each borrower/guarantor. (Shaded 20% net of tax)
Investment Income Enter Dividends, eligible superannuation and interest. (Shaded 20% net of tax)
Allowances Enter Eligible Child Support and Government Allowances only (Not taxed or shaded).
Deductible interest
Enter the amount of interest payable by the borrower in respect of the loan that should be tax-deductible, together with any rental deductions and any other allowable deductions that should reduce taxable income (the calculator automatically recognises the taxation effects of negative gearing in determining after-tax income). The deductible component is based on the actual interest rate to be paid by the borrower. Multiple boxes allow for allocation of deductions amongst various borrowers/guarantors. Deductible interest may be included when calculating servicing capacity. Note: Amount of deductible interest to be used for servicing calculation must not exceed taxable income. In addition, where the application requires LMI cover, LMI insurer policies must be complied with
Data items – Company Income
The company income section has been included to take into account corporate borrowers or guarantors whose taxable income is not assessed at personal rates of tax. The calculator automatically assumes that any net profit will be assessed at the prevailing corporate tax rate.
Company income description
Enter the name of the entity from which income has been included. Typically only one box will be used, however provision has been made for up to four entities.
Amount (of company income)
Enter the amount of net profit of each business exactly as it appears on the borrower’s current financial statements.
Rental Income Enter amount of total gross Rental Income. (Shaded 20% gross of tax).
Investment Income Enter amount of Dividends, eligible superannuation and interest. (Shaded 20% net of tax).
Deductible Interest Enter amount of Tax Deductible Interest from investments.
Amount (of add back items)
Enter the amount of any non-cash and other add back items including depreciation expense as per current financial statements.
Business tax
The calculator automatically assumes that any business tax will be calculated at the prevailing corporate tax rate. If you consider that any other basis of calculation is applicable, enter the revised amount of tax in the business tax box, and state by way of a separate note the reasons for the change.
Summary calculations – Debt Servicing
Net cash after add backs This means: Net cash after tax + company income after add backs.
Living expenses Living expenses are automatically calculated using the data shown in the living expenses table. These amounts are considered to be the minimum living allowances for adults and dependent children for the purposes of the assessment.
Net available This represents the sum of net cash after add backs less living expenses.
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Total outgoing This represents the total of all debt commitments.
Surplus cash available This represents the net available cash less total outgoings.
Cash Flow Test including deductible interest
This represents: Net available cash Total outgoings (Net available cash will be higher when deductible interest included as tax applicable will be lower – only if PAYG income entered, does not affect business tax).
Cash Flow Test without deductible interest
This represents: Net available cash Total outgoings (Net available cash will be lower if deductible interest is not included as tax applicable will be higher – only if PAYG income entered, does not affect business tax)
Other Mortgages
Number of Loans Enter number of loans.
Lender Enter the Lender of each loan.
Loan Type Enter the repayment type of loan.
Recording existing home loan commitments
Principal and Interest (P&I) – Enter the borrower rate, scheduled limit, and term remaining in years or loan maturity date.
Interest Only (IO) – Enter the borrower rate, scheduled limit, and either the remaining loan and interest only terms in years, OR the loan maturity and interest only period maturity date.
• Line of Credit (LOC) – Enter the borrower rate and scheduled limit.
Please note carefully – part or all of the above commentary is subject to change at any time without prior or further notice. All loans are subject to approval by Advantedge and compliance with all of their Terms and Conditions. No responsibility is assumed by any of these companies or their employees for any loss or damage (whether caused by negligence or not) arising from the use of the information and advice contained herein, or from the use of any of the computer programs, software and applications to which this memorandum refers. Any conclusions arrived at as a result of the use of the programs to which this memorandum relates by any person will not constitute acceptance or approval of a loan by Advantedge.
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Serviceability Calculator Example
June 2016.
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