My partner and I are trying to get finance approved so we can buy a small apartment in Melbourne and finally stop renting, especially since we just received another rent increase notice.
However this has proved to be very difficult, we don't have a deposit but I do have some equity with a property I am currently leasing out myself, but hasn't been enough to get a loan. We want around 280k which is about the minimum these days just to get a small 1BR apartment.
Thought I had found a way when I found a deal, Wespac are offering 85% LVR to avoid paying LMI. The trick I later discovered.. they have valued my property at 245k.. 30k less than the NAB did who offer the standard 80% LVR.
Do you think this is just a scam where Wespac have struck a deal with the valuation company to make sure they value less than market value, just so they can dangle the carrot with an 85% LVR loan? If they had of matched NAB's 275k value or even less, say 265k it would have given us the equity we need to purchase an apartment for ourselves..
We just can't seem to find a way. I think presently it would be better to stick with the NAB's offer.. Does anyone have any advice for me?
Thanks
Dan.
LMI Premiums vary considerably from lender to lender and then from insurer to insurer.
You could always look at a lender who doesnt charge LMI but charges a risk fee or equivalent instead.
Richard Taylor | Australia's leading private lender
Thanks for the reply. Could you recommend any institutions that charge a fee instead of LMI? I haven't heard of any..
Just a little more info, the property I own I still owe 182k which gives me $26,250 ( (245k x 85%) – 182k) or
$38,000 ( (275k x 80%) – 182k) in redraw respectively between Westpac or NAB as in my previous post.Could anyone recommend what they would do in our situation? Perhaps we are better toughing it out longer in the rental market for now..
Any help appreciated!
Don't draw on your IP. The interest you pay on the equity draw or redraw won't be tax deductible like it is now…
Second, you will, in effect be borrowing 100% of the value of your new place – <$38k from the equity and the remaining on a new loan. Can you afford the payments on that? You'll be at least 90% geared – could you afford a negative equity situation?
Doesn't sound like you've factored for legals, Stamp Duty, bank fees etc. Some places will capitalise this, but it will increase your gearing and repayments even further…
I'd be opening a high interest account and putting all my spare coinage in that from now on until you have your deposit for the PPoR. Let the IP do it's own thing for a while – only pay what you have to and concentrate on your deposit. You'll get there!
St George is one lender who charge a LEF (loan extension fee) instead of LMI on certain products. You can also borrow up to 100% without LMI/LEF (higher rates).
I don't think Westpac have a policy of instructing valuers to under-value property either!
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
ING are another but i must admit i prefer the Dragon for service and range of product.
Richard Taylor | Australia's leading private lender
Terryw wrote:I don't think Westpac have a policy of instructing valuers to under-value property either!
So why the big difference in value then?
$30,000 is a lot when they are only putting a value of $245,000 on the property wouldn't you think.
Yes i agree it does seem a big difference.
Maybe get your broker to commission a 2nd valuation and see what that comes back at.
Richard Taylor | Australia's leading private lender
Thanks Richard
Yes I already got my broker to that and the valuer wouldn't budge an inch. What got me most mad about it was not the value itself, but his reasoning behind it. I went as far as to forward a few similar properties that sold in the area recently and he came back with "these properties are not comaprable as they are a minimum 100sqm bigger than the subject property" which isn't true as I verified from the real estate that the 2 of the sold properties were both on 650sqm and my property is 630sqm. Still he won't budge, he is set in his mind and won't listen to logic and it seems there is nothing I can do about it. Thats why I started getting the suspicion about Westpac as I only needed it to be an additional 20k higher to get the loan. But honestly, I don't think they would have instructed to under-value too, I guess it is just a case of bad luck.
Thanks for your advice too imugli, I am starting to think you are right, but am still in 2 minds. Maybe we are just not in a position yet to buy. We have been putting away all our spare money, but it is slow going, and a decent chunk of my spare money goes towards the negatively geared IP. I guess it is also not a good idea to redraw on the IP but is is the only source of equity we have, and I thought that it may be better to buy now at 100% than to wait 2-3 years saving the deposit and throwing more away on rising rent.
dgabriel wrote:Thanks for your advice too imugli, I am starting to think you are right, but am still in 2 minds. Maybe we are just not in a position yet to buy. We have been putting away all our spare money, but it is slow going, and a decent chunk of my spare money goes towards the negatively geared IP. I guess it is also not a good idea to redraw on the IP but is is the only source of equity we have, and I thought that it may be better to buy now at 100% than to wait 2-3 years saving the deposit and throwing more away on rising rent.D,
What type of loan do you have on the IP at the moment? If it's PI (Principal & Interest), consider the following (if your situation allows)…
1. Refinance the existing loan on a new 30 year term, interest only for 10. Only borrow what you currently owe though, unless for investment purposes for the abovementioned reason.
2. Set up an offset account connected to the IP loan.
3. Pay what you would have been paying on principal PLUS your savings into the offset account.This will have the following effects –
* You are saving your deposit and any money you withdraw won't cost you deductible interest.
* You save interest on the IP until such time as you withdraw it to buy your PPoR.That may work for you…
Hi dgabriel,
This is an area at the moment that is causing concern with buyers, sellers, lenders and real estate agents – the real fact of the matter is that properties have in general decreased (some significantly in value) and really some people will not stick their neck out to do a val other than a conservative one. Perhaps I can help you see both sides – I recently ordered a valuation for a home for one of my bank clients, and it came in at $250k. Now, some feel banks are (yes they are – as are all lenders and valuers) being a tad conservative) so the client paid out of their own pocket to get the valuation redone independantly (ie , not for 'lending purposes') and guess what? It came in at $240k – with no 'correspondance entered into' according to the qualified, independant valuer.
I do agree, that is quite a difference in your case – some lenders can be a trite more flexible with valuations (you will find the first lender you mentioned is one of them at present) however on the other end of the scale, late last year I saw a customer wanting to 'sue' his bank, because when he could not get the money he wanted at time of his sale proceeds due to loan to ratio (LVR) issues and his properties being 'crossed' (as he requested) he claimed the bank 'over valued one of his properties ' thus 'misleading him' into borrowing 'too much money'. Yeah right……it is a fine line betqween being damned if you do, and damned if you don't.
If you are keen to buy, and you think you will be able to save a bit afterwards, LMI on a sub$300k loan, at less than 85% (even 90% is not that bad) may not be as much as you think. Could I suggest you have a play around with one of the bank calculators on the lenders websites (NAB have a good one, so does ANZ – sure they all do) and do some sums. You can see how every couple of hundred dollars put in extra affects the LMI amount due.
At the moment, most lenders (via a broker or otherwise) would be keen to win new business.
As has already been mentioned, LMI does vary between lenders (just check out some of the credit unions – almost double!!!) and also remeber that if you are paying an extra 1% interest as a premium, risk fee, or higher interest rate to avoid LMI on a $250k loan, that is $2500 per year – not just a couple of grand once off up front.All the best with what ever you decide.
So it seems banks may not value property as high as some owners and or vendors do.
A question, is there any way a buyer can get a bank valuation from a prospective lender (not an independant valuation from a 'property expert') before bidding on property?
Ummester:
As far as I know (could be wrong) you cant. But usually in the contract there's a subject to finance clause?Dgabriel,
I do think it is risky to borrow 100%, unless you are very very confident with your cashflow. However, if you can stomach the giddy feeling: I did use the facility with Westpac. My case: I only had 90%, so I needed another 5% to bring it down to 85%.
Rather than trying to get better valuation, I borrowed the 5% from Citibank personal loan at 11%. Sure it was much more expensive than the 8.5% mortgage rate, but I reckoned paying 2.5% (difference btw 11% and 8.5%) was much better than LMI. I made sure I paid off Citibank loan as fast as possible.
I have paid my Citibank and I still have 85% to go.
Good luck,
Catt.Cattleya
Here to learn the ropes of property investing & share knowledge, not trying to sell anything at all.
Really – take a time to save money for the deposit!!! If you can’t save money now – how you think you will keep yourself organized with repayments?
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