Well, yes I do …. but thats not the point. She has been kind enough to gift my wife and I $20,000 and we are just completely speechless. She refuses to accept it back as we are not strugglers by any measure so we want to make sure that we make the wisest use of this amazing windfall.
What would you do with something like this?
We are about to buy our PPOR for which we already have a 25k deposit.
Should we increase our deposit on the PPOR?
Should we use this $20k to invest in a small IP?
any other thoughts ?[strum]
Hello meatgroup
That is really nice of your Grandmother.
I think that the answer to your question depends on how much your PPOR is going to cost you. Is 25K deposit enough to not have to pay LMI ? If not I would use some of your windfall to avoid this. It’s such a waste of money, specially for your own home when it’s not deductible.
Just my opinion [smiling]
ElkaPut it towards the deposit.
I think realistically I am going to pay LMI regardless…..
We are looking to purchase within 8km of Brisbane CBD and I will not be able to get anything (house on decent land) for less than $380-$400k. Lets go with a worst case scenario and deal with a $400k property.
a 20% deposit (what I think i need to pay to avoid LMI) will be $80,000…. the bets I can come up with is $45,000 …. a large shortfall.
My FHOG will be $7000 but the LMI will eat that all up at approx $6400
So here is my maths …..
Prperty Cost = $400,000
Deposit (5%) = $20,000
FHOG = $7000LMI = $6400
Stamp Duty = $240 (given the new concessions here in QLD I will only pay stamp duty on the difference between $380,000 and $320,000 = $60,000)
Other Costs = approx $4000-$5000This will take care of the $25,000 i currently have avaialble….. and leave me with a mortgage of $380,000 to service. Unless there is a bank who will drop LMI on a 10% deposit…… ???
So I still have $20,000 from grandma !!
Hi. Congratulations – that is pretty special. As far as using the money as an extra deposit, that certainly sounds like a plan. You will be quite surprised how much your LMI takes a dip too with this extra money! (i am not near my trusty calculator, but I would suggest anything beween $1500 and $2000 less LMI, depending on the exact premium, and your savings type etc.) all the best with your new home. [strum]
Thanks v8ghia … I did not know that LMI was calculated using a sliding scale…. I thought it worked along the lines of if you do not have the full 20% deposit then you are going to be slogged the full LMI….
I will take it up with the bank now…
Cheers
RyanCould I suggest that rather than talk to your bank, you talk to a loan broker. They may find you some deal which will cost you less in LMI and other costs.
I am in Brisbane and if you want our broker’s name, send me a private message, but there are several on this forum who obviously are very good as they are always being given a good wrap by those who have used them.
Wylie
Hi,
The LMI issue is worth investigating – this is “dead” money paid to a bank to fund their insurance premium, not yours.
The actual LMI premium charged depends on the LVR (loan to value) ratio, the insurance co used, whether you have 5% genuine savings and who the lender is (there are different rate scales for different lenders).
The lower the LVR the better making your Grandma’s gift of $20,000 pretty handy if you wish to buy your first home.Another approach to get into the market would be to buy an IP now using both your savings & Grandmas $20,000. This would mean missing out on the FHOG but possibly gives you a better price range of homes to look at. There are also negative gearing benefits to consider along with borrowing costs write offs. You will not have lost your saved deposit because both it and the gift will be working for you and can be accessed as equity should you wish to buy an owner occupied home later.
Philip Limbert
APM Finance Pty Ltd
[email protected]
0433 007 105One point has not been mentioned at all yet.
A $400,000 property has closing costs of about $20,000.
I believe that you will really struggle to even purchase the property without granma’s money.
I believe you have to make a livestyle choice.
Either buy a PPoR and start to save money so that you can invest down the track.
Or use your $45,000 now to buy IP and find a nice place to rent. Done right this will eventually set you up nicely.
With both options I think the biggest pitfall is discipline. I find that most people have rent/mortgages as the first thing they pay out of their pay, while putting aside savings comes last, after all expenses (including going out, holidays, etc) have been paid.
A friend of mine bought a neg geared property because he would not have the dicipline otherwise to save money every month. Having the bank breath down his neck is a great motivator.
I think this is a much overlooked psychological point.
Good Luck
Hi Ryan,
Putting the money towards a PPOR is DEFINATELY worth considering. You can use the money now to improve your position, then simply borrow against it later when you find an IP. We did this when purchasing some of our IPs. We simply spoke to our mortgage broker (hint – ALWAYS use a mortgage broker unless you have specific contacts in a bank) & arranged a LOC which we used to fund the IP deposit. It means that the loans are kept completely separate, but you can still draw on your equity for funds while still making these interest payments tax deductable as it is for investment purposes.
This is a simplified version, but worked quite well for us. All properties were ‘stand-alone’ but we still accessed equity & usually avoided LMI!
Good luck with your journey! Asking LOTS of questions is a great place to start, & there are loads of experienced ppl here who are more than happy to share their knowledge! [biggrin]
Regards,
E.
Hi again. Couple of additions – Bridgebuff correctly pointed out closing costs need to be considered , but may not have noticed you are eligble for the FHOG, which knocks most of these away. And re the LMI, according to the calc I use, for a basic variable loan, the extra $20k kicked in would give you an LMI premium reduced from $5690 down to $4294 – around $1500 bucks. You could send each of the forum members that have replied to you a case of James Boags Premium, and still have plenty over! [biggrin] Joking of course. Hope all goes well with your home. [strum]
Thanks for all the advice people. I have an appointment with a financial advisor tomorrow and will chat to my broker shortly after. It is patently obvious that I have a lot to learn and this is one excellent place to find information.
I actually inspected 13 properties this weekend just gone. Man, this is going to be a long a tedious process. Some people certainly do live in a dreamland with their perceptions of value sometimes.
But I am motivated an will stick at it till the right one pops up.
Cheers
Ryan[suave2]
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