Hi,
I would like to know a bit more about what the requirements are to obtain finance for my first investment property. I will be finishing my uni studies at the end of the year and expect to get a full time job hopefully by June 2010.
I have read a lot of the property investment books for the past 5 years and am confident that I understand the relatively simple buy and hold strategy, I have helped my parents out in their small property investment deals in the past few years. I also manage my savings very well. I live with my parents and will continue to do so for the next few years, my personal expenses are kept to a minimum.
I estimate that I will earn $35,000 – $40,000 in my first year of working, so let's say $35,000 to be very conservative.
I have not had a loan before, but have been using a credit card (pay off balance in full each month) and mobile phone with a perfect record.
Based on an online mortgage calculator, at 6% (antipated higher interest rate by then) for 30 years loan I can borrow $257,000-$419,000 (depending on which online calculator I used, based on $35000 annual income + $300-$350 rent per week and $10000 annual expenses, I have used $10000 as personal expenses here but $7500 would also be sufficient)
Based on the estimated loan amount, and financing at 80% LVR I could buy between $321,250-$523,750. Ok this range is quite wide, could someone give me a closer estimate so that I can plan ahead and do more research in my price range?
With regards to genuine savings which I think is 5%??? of purchase price, at a price of $321,250, it would take me about 10 months to a year. Is there any issues about obtaining a loan with only working for a year or less, could I possibly make it quicker, or perhaps I should be more patient.
For the other 15% of the deposit, my parents will lend it to me, this is permitted by lenders right?
As an aside, I plan to work in real estate sales on the weekends on a commission basis, and I estimate that I will earn $12,000 a year (conservative), this will start around the same time as my first full time job around June 2010. Will this help to get more finance, although it is on a commission basis, and yet to prove myself, i.e. would be one year in real estate sales by the time I apply for the loan. Do I simply add it to my $35000 income.
How would the finance requirements differ if I bought this property in a trust, any major difficulties?
I'd also like to take this opportunity to thank the other contributors to this forum, such as terryw and qlds007 and others. Your help is highly appreciated. Thanks.
Hi magic
Firstly good to hear that you have started to think about your first property as there is nothing planning ahead.
To be honest in the current climate i would ignore any online calculator as they simply are not realistic when it comes to Credit Approval. Rule of thumb would be to base your borrowing on around 5 x annual wage which is probably not what you wanted to hear.
Trouble is there are so many variables that 1 peg doesnt fit all holes.
On the basis that you will be living with your parents most lenders will factor some form of board or keep in even if you dont actually pay any as this is a safeguard for them. Secondly the borrow rate and the affordability rate lenders use are 2 different rates so you need to bear that in mind. Most lenders factor in between 1.5-2% interest rate margin over and above the standard variable rate.
With your commissions it is likely you will need to have done this for a minimum of 1 year for any lender to take this into consideration so this will take a while to achieve.
Certainly if you have a total of 20% deposit plus sufficient to cover your acqusition costs, stamp duty etc etc then life becomes a little easier but still will be required to jump a few hurdles and dive through a few hoops.
A good mortgage broker at the time can certainly update you to what is happening in the market place as it is certainly an ever changing field at the moment.
Richard Taylor | Australia's leading private lender
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