Hello all,
Firstly apologies if the answers that I am seeking for have already been answered in the forum before.I am in the process of buying land to build and use the property as IP. This would be jointly(both loan & title) shared with a friend of mine with whom I would be buying another apartment as an IP shortly as well.
Situation here is the bank has asked my wife to be a guarantor on these two investments. With my wife jointly I own 3 IPs and have a subdivision project in the pipeline on one of them.
I am wondering if having her as a guarantor have any bearings on our other investment plans?
What cases do the banks generally need a guarantor? Are we better off structuring the loans any differently? I keep hearing of people who have set up trusts – although I have no idea what is involved and weather it is the right solution here?
Any guidance much appreciated.
Regards
ABDefinitely does.
For your future IPs, they’ll assess your wife as if she was having the whole debt.D.T. | DT Property Management
http://www.dtproperty.com.au
Email Me | Phone MeAdelaide Property Management - whole Adelaide metro
Thanks DT,
Would that also mean that if there is equity in the loan , or if the IP becomes CF+ she gets looked at favorably during assessment?Hi AB,
From what you are asking, it seems your affairs are quite complex compared to many – thus I would suggest taking advice from someone who knows finance backwards. e.g. a Mortgage Broker. You might have seen there are several members on here who are MB’s, and it sounds like their expertise might be needed with what you have going on right now.As DT said, your wife would be “deemed” as having all of the debt she is guaranteeing, but only half (or one-third?) of any Income. Perhaps that applies to Equity too (I’m not sure…) but these kinds of questions are for MB’s and similar advisers. They may also have alternative money sources that could work out better for you…. and perhaps even a better way to proceed (???)
Check out one or two,
Benny
Thanks DT,Would that also mean that if there is equity in the loan , or if the IP becomes CF+ she gets looked at favorably during assessment?
Nope, will be looked at has having 0 income as part of the assessment since she doesn’t have a stake in the ownership.
Additionally, for yourself, since you own half you’ll be assessed as having half the income but whole of the debt.So its a massive triple whammy to your servicability.
D.T. | DT Property Management
http://www.dtproperty.com.au
Email Me | Phone MeAdelaide Property Management - whole Adelaide metro
Thank you Benny and DT for your comments.
Benny – you are right I will need advice from a expert MB.
DT – this paints a gloomy picture for all partnerships, particularly ones with situations that need a guarantor (as in my case) , but I guess that is the reality of it. Is setting up a trust a better way of handling it?Why are they asking for a guarantor – are you using other property which you wife partly owns as security or is it because of servicing?
You should keep your wife right out of it if possible. You don’t want her exposed to other people’s debts and it would adversely effect her future borrowing capacity.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks Terry,
As to why they are asking for a guarantor – I am a bit confused myself.
Both me and my friend have good serviceability and borrowing capacity as far as I know. The only thing I see that could have raised some red flags from the banks end is that my friend does not have any history with the said bank who is lending- whilst me and wife have history dating back to a decade.I have double confirmed that no other properties have been held as security. I tried my best to keep my wife out of it – but at the 11th hour the bank requested this additional step done.
Bit of a underhand ball for us as we didn’t have enough time to choose another bank or to go defensive with the fear of losing the deal.
Just and update,
I had a quick conversation with the bank. My wife was asked to act as a guarantor – general position because the bank needed to use her income to service the loan.They have clarified as below :
When an applicant applies for a home loan the bank takes only the applicant’s income in this case mine, however the full liabilities and monthly expenses are input. Hence the reason why she had to act as a guarantor.My question though is could we have set this up any different?It appears we may need to seek the expertise of an experienced MB to further expand our portfolio or May be its time to halt the borrowings for a while and wait for some capital gains & equity to kick in. :)
Hopefully it helps others in my situation.
Regards,
ABYes many ways to set this could potentially.
First, try a different lender
Secondly, ask the bank what you could borrow without the wife. See how much the short fall is
thirdly, is it possible for your wife to borrow on her own and lend you and the other person the money.
4th – it is possible for you to borrow some on other property and lend your mate the short fall?Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Many thanks Terry,
I will investigate the options further.
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