hi all,
we are hoping to purchase our first IP…. i am a stay-at-home mum (ie, no income) and my partner is a self-employed builder… we have a fantastic accountant who has my partner on a very low wage, so we pay less tax, however it does us no favours when applying for a loan… does anyone know where (or who) would allow us to borrow 90-95% lend for a lo-doc loan.. and what sort of interest rate is acceptable for lo doc (or how much is too much !!)
thankyou
There is a big difference in interest rates between 90 / 95% LVR when it comes to lodoc loans.
At 90% you are looking at an interest rate of around 8.6% with another 1% added on for a 95% LVR. Both these rates assume that you pay the LMI or they can be paid for by adding another 1% or so on the interest rate.
All loans are fully mortgage insured and very post code sensitive.
Richard Taylor | Australia's leading private lender
Thanks Richard for your reply.. We are both REALLY keen to get started and we figure there's just GOT TO BE A WAY !!!
If anyone could recommend what we can do to get started it would be greatly appreciated… Our situation is this:
– have a $505k mortgage currently owed on our PPoR
– PPoR valued at around $700k
– currently paying P&I (am happy to switch to IO if it will help however we are locked into a 3 yr fixed rate so i'm assuming there would be some hefty fees to break this contract)
– would like to start with a small IP, say around $200k
– partner is a builder, so reno's are no problem to add value
– would like to purchase with CG being our main objective
– want to purchase 2nd, 3rd, 4th, etc IP's as soon as practical
– assuming we would need to apply for a lo doc loan considering my partner is in low wage bracket (thanks to our creative accountant) and i'm not working (although will be going back to work soon part-time earning approx $300pw after tax)
– we have no other assets (ie shares or available cash)…. however we do have a well trained border collie that i could rent out for weddings, parties, companionship, anything
I am continually reading, learning, reading, learning from experts on this forum, reading books, etc and have gained a huge amount of knowledge… however i'm finding that the simple basics of getting started are confusing me the most, particularly the financials !!!
If the bank revalues our home and says its now worth say $750k, what sort of equity does that give us? And how do we get that equity?? Do we re-finance (remembering that we would probably have to refinance on a lo doc loan)? And will refinancing increase our mortgage repayments?? Or do we get a LOC on our current mortgage and does this increase our repayments? What's the difference?? I really have no idea how this basic stuff works… So assuming we either refinance or get a LOC (and i dont know which is the better option) and use that equity as a deposit for our 1st IP then does that mean we get another loan or does it add onto our current mortgage??
If paying a higher interest rate for a lo-doc loan is our only way then we are happy to go for it, knowing that the CG of our IP's will hopefully outway these higher rates… Is there a point where the banks/lender will be happy to give us a competitive interest rate in the future (ie after purchasing a few properties and they know we are credible)…
Please help as I'm so confused and mind-boggled and i really want to get my head around it confidently. We are so keen and there's GOT TO BE A WAY …. We are hoping to be in a position to purchase (at least) one IP every 12 months for the next 20 years or so …
I dont want to sound like a scare monger, but i think you need to be VERY careful at the moment. Especially if applying for lo doc loans. With the current sub prime mortgage crisis you could find yourself in a LOT of TROUBLE in the months to come. One hypothetical situation (and yes at the moment its only hypothetical) is that if the current credit crunch continues you may suffer from two problems:
1) If you are on a variable loan, you might find your interest rate skyrockets, the reason being that even if official interest rates stay low, if investors of securities mortgages become risk averse, they will only buy the securities paper if it has a VERY GOOD YIELD to compensate them for the risk. This means that the numberous lenders out there will be forced to charge higher interest rates in order to securitise their loan. Most of the non-bank lenders securitise loans, they dont keep them on their own balance sheets. In simple terms they issue you with the loan then on sell that loan. If this occurs then even loans with the big banks will increase as they will be able to increase their margins.
2) If you try to offload your property you may find you are trying to sell into a depressed market (when other people are trying desperately to sell as well), thus you may incur a massive capital loss.Just a note to be careful and FULLY UNDERSTAND what you are doing and have some form of insurance plan. For example if net rents are 8% and i can borrow on a fixed rate for 7.5% fixed for 10 years. Then the cash flow will sustain the loan and the rate is fixed so i am not exposed to interest rate risk.
Hi Boshie,
I agree with the above post in that you really need to get a little more knowledge in the basic finance department.
A good place to start is to keep searching through this site as it has a wealth of information.
Another thing to do is read some basic finance/property investing books.
I believe Margaret Lomas explains finance in her books in an easy to understand manner. (so does Steve!)
And there are others.
I am in a similar situation to you, being in partnership with my husband who is a self employed Plumber.
We have low doc loans, our lender offers a step down interst rate over three years and as our 3 years are well and truly over, all our investment loans are at reduced rates, even though they are "low doc".
Some people may be jumping up and down now as they don't believe in having your loans with one bank, but I like the simpicity. We have one LOC over our PPOR (for the deposits) and separate basic interst only loans for the 80% value of the investment properties.
However, the big difference is that you have quite a high PPor debt, whereas we actually don't have any personal debt on our PPOR making it a little more comfortable for us to carry negative gearing.
I would consider paying down your PPOR loan first to a more comfortable level.
Hope this helps a little,
SueMany lenders now offer cheaper rates products with an interest rate cheaper than the old step down rated products.
At 90 – 95% LVR however you would still be paying way over the odds.
You would be better to consider a 80% Lodoc product and a even private funding for the 10% or similar.
The combined rate would still be considerably cheaper.Richard Taylor | Australia's leading private lender
chilliaa wrote:I dont want to sound like a scare monger, but i think you need to be VERY careful at the moment.I agree with this, both for the reason you mention and one other…
From the original post:boshie wrote:… we have a fantastic accountant who has my partner on a very low wage, so we pay less tax… does anyone know where (or who) would allow us to borrow 90-95% lend for a lo-doc loan.
You do realise that if the amount of income declared for taxation purposes is less than the amount you self-certify for a low-doc mortgage, this will likely trigger a visit from the ATO when its data-matching program hits your TFN?
hi Boshie
would you consider doing some joint venture projects ?
p.m me if your interestedBoshie
You could always consider a private 2nd secured mortgage (albeit at a higher interest rate) and use the 15% raised as deposit and then take a 80/85% lodoc / nodoc loan at a sensible interest rate.
Richard Taylor | Australia's leading private lender
Thankyou to everyone who has replied…. The knowledge is invaluable…
We are still doing the finishing touches on our PPoR and as soon as this is done we will look at refinancing. We are hoping to get enough equity to put a 2nd level on top plus have enough to give us a good deposit on our 1st IP and only have to lend 80/85%…
Thanx to Foundation for your words or warning.. I will speak to my accountant to see what we can do..
Thanx to Richard for your financial advice, I'm sure I'll be needing lots more to see us thru our big adventure.
Thanx to Sue as you've helped inspire me and we are thinking along the same lines, ie using LOC on our PPoR for deposits and having a seperate IO loan on IP's
Nucopia, thanx for the offer but we are really hoping to be able to fund this ourselves, however in saying that, we still need to convice the lender that we are serious..Boshie
You must be logged in to reply to this topic. If you don't have an account, you can register here.
