First Home Buyer with a Gifted Deposit and a Default
Marcus, 29, is buying his first home for $640,000 with a 10% deposit. He has saved $38,000 and his parents will gift $26,000, to be transferred from his father's account two weeks before settlement. Marcus has been contracting through his own company for 14 months after eight years as a PAYG employee in the same industry. He also discloses a $3,200 default listed 20 months ago for a mobile phone plan he says was billed in error and later paid. He wants a 90% loan and asks you not to mention the default 'because it's already paid and it was their mistake'.
1. Identify the lending risks in this scenario and explain how each affects lender choice and structuring.
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Deposit source. Most lenders require genuine savings of 5% of the purchase price ($32,000) for a 90% loan; Marcus has $38,000 saved, which satisfies this. The $26,000 gift is acceptable but needs a signed gift letter confirming it is non-repayable and non-interest-bearing, plus evidence of the transfer. Lenders will scrutinise a deposit that appears in the account shortly before application, so the funds should be seasoned and documented.
Income. Fourteen months of self-employment through a company falls short of the two-year trading history most lenders want for full-doc self-employed borrowers. Options include a low-doc or alt-doc product (usually capped at 80% LVR and priced higher), or waiting until two years of returns and notices of assessment exist. His prior PAYG history in the same industry helps but does not replace trading history.
Default. A $3,200 default 20 months old is material. Many lenders decline any default, and those that accept it typically require it to be paid and may cap LVR at 80% or apply a pricing loading. Specialist lenders will consider it but at higher cost.
Structuring implication. The combination of 90% LVR, short self-employment history, and a recent default is likely to exceed any single mainstream lender's policy. Realistic paths are to reduce the loan to 80% (requiring an extra $64,000, which the family may or may not be able to provide), use a specialist lender, or delay six to ten months until trading history matures.
2. How do you handle Marcus's request to omit the default, and what disclosure obligations apply?
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You cannot omit it. The lender's application asks about defaults and credit history, and the lender will obtain a credit report regardless. Submitting an application that conceals a known default is misleading conduct, breaches your obligations under the broking code of practice, and can void the loan or expose the client to enforcement.
Explain to Marcus that the default will surface on the credit file anyway, so concealment achieves nothing except damaging his credibility with the lender and potentially with you. Instead, prepare a written explanation: the circumstances, evidence that the debt was disputed, proof of payment, and a statement of his current financial position. Some lenders will accept a paid default with a reasonable explanation; a documented dispute strengthens the case.
Also check whether the listing is accurate. If the debt was genuinely billed in error, he can raise a correction request with the credit reporting body, but he should not delay the application on the assumption it will be removed. Record the advice and his instructions in the file.