Forum Replies Created
First thing you don't do is apply with different banks at will. Each time you do, it hits your credit file, and multiple enquiries in a short time frame raises a red flag, and can ruin your credit file for future requests (as lenders think the worse in that you have been rejected every time).
Make sure you raise enough funds for a deposit, costs, etc to be comfortable with the debt that you are about to get yourselves into, not only now but also taking into account future circumstances.
Also need to ensure you structure the loan correctly depending on what you want to do in terms of future property purchases.
Redrager,
The amount of equity depends on the current value of the property. Your local realestate agent may give you a general idea what the property is worth, but usually exaggerate and anyhow lenders look for proper valuations. Each lender has their own set of valuers they work with, and since it's not an exact science the property value may differ from lender to lender. You may obtain an independent valuation, but if the lender doesn't accept the particular valuer, they will organise their own anyway.
Once the valuation is determined, the amount of equity in the property is the property valuation less the outstanding loan. However lenders won't allow you to access all of if and will limit the amount to a maximum of 90% (depends on the lender).
Example: Your outstanding loan is $320K, valuation comes in say $500K.
Equity is $180K, however allowable equity is $130K ($500 x 90% – $320K)
Cheers
Tom
When you say apartment package, is this an off the plan purchase? If so, you need to be aware that normally with OTP purchases, settlement is a long way away, and most lenders won't allow unconditional approval until closer to the date. Also valuation is done at that time as well and with todays market, it could mean a drop in value which could mean you might be up for more of a deposit.
Talking about deposit, why have you suggested a $50K (25%) deposit? Being an investment, you should look at a smaller deposit, and place the excess funds in an offset account.
Bacchus Marsh is still really a country town even though its within reasonable distance to surburbia, though I can understand why you're looking at it, it's relatively cheap. However you need to look at the rental yield, and what type of future capital growth is expected.
Luke, just adding to Jamie's comments, you mentioned an initial loan of $300K, and now it is $450K. What was the extra $150K used for? Investments purposes, personal?
Investment would allow the balance to become deductible, personal not.
Cheers
Tom
Just to add to all the above, you mentioned that one of the loans was a PPOR converted to an IP. Is the other loan your current PPOR? If it is, I would suggest you only have one offset account and it is linked to this.
As others have mentioned, with $700K in loans, there are plenty of lenders out there who can offer under 6% variable rates. 6.68% is way too high. You really need to negotiate with your lender, and if they don't come to the party, you can always refinance elsewhere (bearing in mind that there are more lenders than just the big 4).
Cheers
Tom
There is no set rule as far as I know for how much is too much. Each lender has their own subjective views on this and they differ from one another.
How many is "numerous" in your case?
Might be worthwhile trying a lender that doesn't credit score and looks at the deal on it's merits.
Cheers
Tom
Offset is similar to redraw in that it reduces the interest payable on the loan by the same amount, the difference is that with an offset, the funds are sitting in a savings account which allows you greater flexibility when you need to use the funds, and also helps you for tax purposes if you convert the PPOR into an IP at a future date. Offset only helps the one loan account it is linked to.
In terms of IO loan for the IP, the reason that is done is because it stands to reason that one would want to pay off their non-deductible debt (PPOR) quicker than the deductible debt (IP). Why pay the principle off the IP off when you can divert that principle to the offset of the PPOR thereby reducing the interest paid on that loan, and claiming the maximum interest on the IP for tax purposes? More money in your pocket instead of the government.
As Shahin mentioned, you need a separate loan for each facility. This means when accessing the equity in your PPOR, you take out a split loan for the deposit and costs for the IP. This means the loan in not a mixed purpose one and the investment part is distinguished.
Whatever you do, don't allow the bank to combine both securities into one loan. They have a habit of doing that. Not good for you.
Cheers
Tom
As Bardon said, as you are considering in converting to a investment down the track, the loan should be as high a LVR as you feel comfortable with, and it should be IO. In fact all this applies to all properties that are already or will become investments. This maximises your deductible debt.
I will also add if you are disciplined with money to hold your excess funds in an offset account linked to the initial property, which will lessen your interest payments. Then when the time comes to buy your new PPOR, you can use the funds in this offset as the deposit, costs for the new purchase.
A decent broker can help setup the loan structure appropriately for you.
Cheers
Tom
Anything that helps de-risk the application for a lender and LMI insurer makes it more attractive for them to borrow you money. Jamie has mentioned a few items below that assist a strong application, another item can be a stable employment history (the longer in your current employment, the better).
Oh, and you will still be paying stamp duty even on an OTP purchase, it will however be calculated on the land value only at date of contract as building hadn't commenced.
Cheers
Tom
Hi Chris,
With OTP purchases as they are normally completed a long period after signing the contract, you need to keep in mind that:
1. Finance cannot be fully approved until closer to the settlement date;
2. The property may decrease in value and you may need to stump up more funds at settlement.
In terms of your security, it comes down to what the LMI insurer will accept as security for your LVR. A few lenders have a minimum of 50sqm excluding balconies, etc. while some will allow a minimum of 40sqm of living space if the property is in a "desirable and high demand capital city metropolitan location."
The suburbs you are looking at are more higher end than not, but it really is at the discretion of the LMI insurer. A strong application would help.
Also keep in mind that you would need to come up with funds for stamp duty, etc even if it is minimal though FHOG can be offset against this.
Cheers
Tom
mbuilding, from my quick calcs, I would have a purchase price around the $420K mark in mind, with 20% deposit plus approximate costs of around $20K coming out of the equity from the land loan, the remainder being a standalone loan.
However if Richard thinks that $450K is achievable, then it most likely is.
I suggest you contact him. His reputation on this forum is held in high regard.
Cheers
Tom
Hi mbuilding,
First off the land with DA might increase the sale price to someone looking to purchase but it won't have an effect on what the lender will value at. They will look at the value of the land on its own. It however still seems you have enough room in there to use as equity.
So yes, you are able to use the equity in the land for say a 20% deposit and costs (stamp duty, etc) for an investment property purchase.
However with your salary, despite having no other debts and no rent payments, it seems that you will have serviceability issues with a $450K purchase. Will be a bit high.
Cheers
Tom
When you obtain quotes for insurance products, and they ask you if you have ever had any claims in the past X years, there is a reason for that.
Answer yes, and the premium automatically increases.
Why take the blame for something you haven't done? Get her insurance company to take care of it, or get her to pay cash for the damage.
If you're looking at 2 properties before Jan 2013, with your savings you will need to go 90% lends on both to cover deposits & stamp duty costs, etc. LMI will be applied but can be capitalised and is tax deductible.
IO on both with offset on one, excess cash to go into offset. Has the same effect as paying principal off the loan, however allows you flexibility. When time comes for new investment property, you can use excess funds to pay off part of one loan, and then taking out a sub account you can use the equity that was paid down by excess funds for the deposit and costs on new IP making it all deductible debt.
Jenny111,
Are you sure you aren't getting it confused with stamp duty concessions for first home buyers? Currently at 20% discount up to $600K purchases, then 30% at the start of 2013, 40% at the start of 2014, and 50% as of 1st Sept 2014.
This has been in effect for over a year now. I doubt they would go to all this trouble in timing the different phases, and then scrap it at the beginning of next year for the benefit of everyone.
Qlds007 wrote:Again don't want to picky but if you haven't purchased the properties yet the money can't be in an offset account.That's what came to mind when I read the post.
Unless he has a PPOR loan we don't know about?
Coota,
As per Richard's post, what exactly are you referring to in terms of a master facility?
Also your figures might be out of whack. With 10% deposit and stamp duty, etc on a $450K purchase will set you back $70-$75K. Doesn't leave much change out of $110K as per your post for a second purchase.
