Hello,
I bought my current property (PPOR) in January of this year. My partner and I are planning on buying a larger family home in October/November this year, and to rent out my current property.
I will be able to charge around $300 a week in rent, and if I switch to an interest only loan, my monthly payment will be about $1800.
My two main questions at this point are:
1. Is it too soon after the first property purchase (Jan 07) for lenders to consider us for another purchase later this year?2. Is it just a little bit too negatively geared with those figures??
ThanksRL
Based on those figures you are going to be out of pocket $500 per month on your rent versus mortgage, and that is GROSS rent. You need to factor in around 20% of the rent to be swallowed up in holding costs.
This means you will be out of pocket around $700 per month (approx $162 p/w x 4.3 weeks), and you will have another loan amount on your new PPoR to service as well.
It is hard to work out your financial exposure/position without other figures such as how much income you have; in your case you will be paying a new mortgage on a new PPoR, and there is no tax relief for this new loan amount.Basically, the Banks will take into consideration two main factors (there are others, but two main ones):
a) serviceability
b) LVR.Serviceability is your ability to repay the loans you are considering. Some Banks take into account the rental income, and up to around 80% of it (some will consider 100% I'm told). As a general rule, without factoring in rental income, you should work on no more than about 35% of your gross income to be used for servicing all loan repayments. More than this will probably incur undue financial strain.
Of course, these days there are numerous ways to finance property purchases, and when the rent is considered the equation changes.LVR is the Loan to Value Ratio; how much you owe divided by how much you own, multiplied by 100. This is the percentage of your ownership, and generally most Banks won't allow you to borrow more than 80%.
of course, as above, there are different financing rules and policies for each lender. Some lenders will allow you to borrow 100% LVR. Personally, I think this is a very dangerous level of exposure for most people. Life happens and if things go wrong you could lose your house.A basic calculation to help you work out your own answer to the SERVICEABILITY question would be to see if your total loan repayments for the two properties will be less than 35% of you gross income including the NETT rent income added to it.
Then add the two loans together and use the LVR formula (loan/value x 100 = LVR%) to see if you are under 80%.
If you are over 35% and 80% then this is dangerous exposure levels in my opinion. The problem is there are banks that will say "yes" and give you the money, but they are not putting their house on the line – you are.
L.A Aussie wrote:Based on those figures you are going to be out of pocket $500 per month on your rent versus mortgage, and that is GROSS rent. You need to factor in around 20% of the rent to be swallowed up in holding costs.
This means you will be out of pocket around $700 per month (approx $162 p/w x 4.3 weeks), and you will have another loan amount on your new PPoR to service as well.
It is hard to work out your financial exposure/position without other figures such as how much income you have; in your case you will be paying a new mortgage on a new PPoR, and there is no tax relief for this new loan amount.Basically, the Banks will take into consideration two main factors (there are others, but two main ones):
a) serviceability
b) LVR.Serviceability is your ability to repay the loans you are considering. Some Banks take into account the rental income, and up to around 80% of it (some will consider 100% I'm told). As a general rule, without factoring in rental income, you should work on no more than about 35% of your gross income to be used for servicing all loan repayments. More than this will probably incur undue financial strain.
Of course, these days there are numerous ways to finance property purchases, and when the rent is considered the equation changes.LVR is the Loan to Value Ratio; how much you owe divided by how much you own, multiplied by 100. This is the percentage of your ownership, and generally most Banks won't allow you to borrow more than 80%.
of course, as above, there are different financing rules and policies for each lender. Some lenders will allow you to borrow 100% LVR. Personally, I think this is a very dangerous level of exposure for most people. Life happens and if things go wrong you could lose your house.A basic calculation to help you work out your own answer to the SERVICEABILITY question would be to see if your total loan repayments for the two properties will be less than 35% of you gross income including the NETT rent income added to it.
Then add the two loans together and use the LVR formula (loan/value x 100 = LVR%) to see if you are under 80%.
If you are over 35% and 80% then this is dangerous exposure levels in my opinion. The problem is there are banks that will say "yes" and give you the money, but they are not putting their house on the line – you are.
What he said…
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