What Are Near Prime Home Loans And Who Uses Them?
Near prime is more than just the latest buzz word around town. Find out what this valuable space means in real terms for brokers and borrowers.
More and more borrowers are finding themselves unable to secure a home loan due to the tightening loan criteria of the major lenders. It’s not surprising then that near prime is fast becoming the new buzz word around town. But many brokers and borrowers are still unsure about what near prime actually looks like in real terms.
Bluestone defines near prime borrowers as clients who have clear credit but are unable to get a loan with the bank due to the tightening lending criteria of scorecard algorithms. To illustrate exactly what we mean, below is a breakdown of what we look for in a near prime borrower, and how we determine whether your customers fit the bill.
Acceptable Income Sources
At Bluestone we accept a wide range of income types to build a realistic picture of a borrower’s actual capacity to service a loan. Income types we accept include:
– Full-time, part-time and contract employment
– Business income for self-employed borrowers
– Income from second, third and additional jobs
– Bonuses, directorships, overtime and probation income
– Family Assistance A and B, Child maintenance payments and all centrelink payments other than Newstart (as long as these are not the only income source)
– Rental income (calculated at 80% gross rent) and other investment income
Income evidence and verification
PAYG borrowers can verify their income using their latest 2 payslips and 3 months’ personal bank statements.
Although self-employed borrowers can qualify from day 1 of GST registration, they must have had their ABN for at least 24 months to be considered for near prime. They too have to submit 3 months’ personal bank statements. Additionally, self-employed borrowers have to disclose 6 months’ business bank statements as well as either:
– 2 years’ tax returns or notices of assessment (NOA), OR
– 12 months’ business activity statements (BAS).
Unlike other Bluestone solutions, near prime does not accept accountant’s letters for verification purposes.
Depending on what borrowers intend to do with their near prime home loan, they may have to provide further evidence. For example, when consolidating debt borrowers must provide 6 months’ statements for mortgages and personal loans as well as 3 months’ credit card statements.
In order to be considered for Bluestone’s near prime product, borrowers must have a clear credit rating. Their bank statements can’t show evidence of recent arrears, late payments or overlimits and they can’t have bankruptcy or Part 9 or 10 agreements in their past.
While borrowers mustn’t have any defaults, writs or judgements against their name, it’s important to note that Bluestone ignores any that are under $1000, whether they’re paid or unpaid.
A near prime home loan can be the right solution for all kinds of borrowers. Our customers use them to purchase their first home or fifth investment property. Others consolidate multiple debts or refinance their existing home loan to reduce their monthly payments.
Many self-employed borrowers especially benefit from a near prime home loan with an in-built line of credit, which Bluestone caps at $500,000. We also include a $100,000 cash out feature and up to 5 years of interest only payments (for investment loans) to ensure our product is as customised as possible.
We do our best to ensure Bluestone near prime rates remain competitive and affordable. The actual rate a borrower will receive primarily depends on the loan-to-value ratio (LVR) of their home loan. All Bluestone loans require a maximum LVR of 85% (80% for lines of credit or investment loans), and the lower the LVR the better the rate your customers can access.
At time of writing, a fully verified borrower can access rates starting at 4.39% at a 60% (4.77% comparison rate*) or lower LVR, which rises to 5.49% for a 85% LVR (5.92% comparison rate*). For self-employed borrowers using alternative income verification methods (Alt-doc), rates are slightly higher at 4.64% to 6.49% (5.02%* to 6.93%* comparison rates).