My wife & I are really struggling with a decision. That is, if to buy our first PPOR or an investment property.
I am having difficulty understanding how equity works. Let’s say we buy a PPoR, move into it and start making repayments. Let’s also assume the repayments are the same or slightly less than our rent was previously. (Therefore, we are now living in our PPoR, with a loan, but our expenses and savings did not change.)
If we found a neutral-geared IP (its incoming rent would cover the IP loan repayments), will we be able to get a second loan?
Also, someone I know has just completed a mortgage broker course. They told us once we have the PPoR loan, we could instantly “access our equity” – or, up to 80% of our PPoR as a deposit for an IP property. Even though we still owe 80% of its value to the bank!?
I don’t get it.
Our other plan of action, of course – would be to buy an IP first. One that is cashflow neutral or slightly positive. Because we can now document to a lender that the IP is paying for itself… and so our expenses have not increased (we still have the same income we had before the IP loan), we should be able to easily borrow again, yes?
Thanks for reading…
Allan
Originally posted by JustAllan:My wife & I are really struggling with a decision. That is, if to buy our first PPOR or an investment property.
This one is totally up to you.
If we found a neutral-geared IP (its incoming rent would cover the IP loan repayments), will we be able to get a second loan?You would if you had the income to service the additional loan. Most lenders will not allow use of the total rent and will use only around 75% of it towards servicing. This allows for vacancy and other expenses like property management, rates, etc.
Also, someone I know has just completed a mortgage broker course. They told us once we have the PPoR loan, we could instantly “access our equity” – or, up to 80% of our PPoR as a deposit for an IP property. Even though we still owe 80% of its value to the bank!?Tell him/her to go back and do the course again. You can actually borrow much more than 80% initially but refinancing will only allow you to go to 95% but it will cost you a lot in mortgage insurance. Your commonsense has told you that you can’t borrow what you already have borrowed and used.
Our other plan of action, of course – would be to buy an IP first. One that is cashflow neutral or slightly positive. Because we can now document to a lender that the IP is paying for itself… and so our expenses have not increased (we still have the same income we had before the IP loan), we should be able to easily borrow again, yes?I answered this above. You want more than slightly positive if you don’t want your serviceability position to change because they will only use a part of it.
Robert Bou-Hamdan
Mortgage Adviser0414 347 771
[email protected]
http://www.mortgagepackaging.com.auFREE Finance-Related Newsletter – Click Here
Comments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty LtdHello Allen
Interesting post there. The morgage advisor has given a good reply i think.
I think there are a lot of people out there who don’t really get how mortgage finance works. I know i was one of them. The old quote “If you think education is expensive then wait till you find out how much ignorance will cost you” applies.
Good luck with your decision. Only you can do that.
Shawn
Originally posted by The Mortgage Adviser:Quote:Originally posted by JustAllan:Quote:If we found a neutral-geared IP (its incoming rent would cover the IP loan repayments), will we be able to get a second loan?<br>
You would if you had the income to service the additional loan. Most lenders will not allow use of the total rent and will use only around 75% of it towards servicing. This allows for vacancy and other expenses like property management, rates, etc.So to get that second loan, would we need another 20% deposit saved, to avoid paying mortgage insurance? Or can we draw from the first property somehow to avoid it, even though we’ve only just started repaying the first loan??
Allan.
If there is not enough equity in the first property, you would need another 20% and costs to avoid mortgage insurance. I would assume you would not have any equity available if you just started the first property loan.
Robert Bou-Hamdan
Mortgage Adviser0414 347 771
[email protected]
http://www.mortgagepackaging.com.auFREE Finance-Related Newsletter – Click Here
Comments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty LtdHi Allan,
another factor to consider is the First Home Owner’s Grant.
If you buy an investment property first you will lose your eligibity for the grant. In your case it may be best to buy a PPOR first, pay off as much as you can ASAP. Paying extra off your home loan will give you the ability to use the equity for an IP sooner.
TerryTerence McMahon
HomeWin
FinanceTerence,
He will NOT lose the FHOG if he buys an investment property first. You can buy as many investment properties as you like as long as you DON’T live in them.
Robert Bou-Hamdan
Mortgage Adviser
http://www.mortgagepackaging.com.auFREE Finance-Related Newsletter – Click Here
Comments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty LtdRobert,
you are of course right. Shouldn’t have dashed off my reply. I was concentrating more on Allan’s original question – PPOR or IP(s) first – in terms of investing strategy. (e.g. how long will the FHOG be offered – 1 year, 5 years, forever?)
TerryTerence McMahon
HomeWin
FinanceHow long is a piece of string?
No-one knows the answer to that!
Robert Bou-Hamdan
Mortgage Adviser
http://www.mortgagepackaging.com.auFREE Finance-Related Newsletter – Click Here
Comments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty Ltd
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