HI, I am hoping someone can help me.
We have found 60 acres that we would like to purchase. We have made an offer of $630k. We would like to borrow $460 against the property to pay the owners $400 and clear $60k debt, we would then pay the onwers the rest in 24 months. To combine our debt with the amount of $400k would free up cash to pay the owners and extra $400 per month cash in the hand. As the house is a dual occ we could rent the other 3 bedroom side of the house out and get approx $300 – $400 p/w which we would also pay directly to the owners as cash in hand.
The owners have agreed to us taking a first mortgage out on the property and then they would take one out for the remaining amount that is owed. We do not have a deposit.
Can someone please explain what they are meaning. If it were vendor finance wouldn't the owner borrow the whole amount? And then we pay the owner. We are also having trouble finding a bank that will vendor finance the deal. Any ideas?
Can anyone see this working any other way. Or how we could make the deal sweeter for the owners. My hubby and I both work full time and have decent wages. We have a couple of things in the pipeworks that will give us cashflow in 24 months.
Help please!!!
Hi
The vendors are offering you what we call a Second Mortgage Carry Back (SMCB), i.e. you get a first mortgage on the property for $460K (i.e. approx 73% LVR) and they will supply you with a second mortgage for $230K (you plan to use $60K to pay off debts).
Before the GFC and the new National Credit Code, SMCB's were easy to get across the line, i.e. lenders weren't all that worried about where the money, above their loan amount, was coming from. That is definitely not the case now and to get one across the line takes some finessing. I'd suggest you use a mortgage broker who can show you that they've got one or two of these across the line recently.
Also, as the property is 60 acres, is there a chance that this could be classed as a commercial/business loan? If it could be, that could make a SMCB easier to get across the line.
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
narboz wrote:HI, I am hoping someone can help me.We have found 60 acres that we would like to purchase. We have made an offer of $630k. We would like to borrow $460 against the property to pay the owners $400 and clear $60k debt, we would then pay the onwers the rest in 24 months. To combine our debt with the amount of $400k would free up cash to pay the owners and extra $400 per month cash in the hand. As the house is a dual occ we could rent the other 3 bedroom side of the house out and get approx $300 – $400 p/w which we would also pay directly to the owners as cash in hand.
The owners have agreed to us taking a first mortgage out on the property and then they would take one out for the remaining amount that is owed. We do not have a deposit.
Can someone please explain what they are meaning. If it were vendor finance wouldn't the owner borrow the whole amount? And then we pay the owner. We are also having trouble finding a bank that will vendor finance the deal. Any ideas?
Can anyone see this working any other way. Or how we could make the deal sweeter for the owners. My hubby and I both work full time and have decent wages. We have a couple of things in the pipeworks that will give us cashflow in 24 months.
Help please!!!
To be honest- i dont think this is a do-able deal under residential lending….and it will be hard as well under commercial. Reason?
1. Partial vendor finance
2. 60 Arces
3. You have a 60 k debt that’s not related to the home
4. No depositCould you do it as a full vendor finance? rather then borrowing some from the bank – shoot Paul a email he might be able to help with the full vendor finance.
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Doesn't sound promising narboz.
You have no deposit and a a 60k debt. Sounds like you need to borrow 110% and will also have to find stamp duty too. Even if the vendor could finance you in to 100% LVR you would find it very hard to get finance to pay the vendor out in a few years.
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
Thank you everyone for your comments. its not necessary for us to include the $60k personal debt as we can still fund this outside of the vendor finance. It would have just freed up a little cash to pay them more. Would this change anything?
And the fun part is finding a lender that is willing to go the extra mile to do a SMCB for us or be experienced in this field.
We are looking at establishing the property as a cattle, pony stud and pig breeding facility. However not sure on the processes of a business/commercial loan. I would appreciate a little information on this.
Regards
Linda
Do you mean you need another loan to set up the farm on top of the vendor financing?
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
Hi Terry,
No, we will slowly build this with our own money.
But, Paul asked whether there was a chance of setting the farm up on a business/commercial loan.
cheers
LInda
narboz wrote:Hi Terry,
No, we will slowly build this with our own money.
But, Paul asked whether there was a chance of setting the farm up on a business/commercial loan.
cheers
LInda
Hi,
For the farm type and size your after..it be def commercial loan. From the sounds of thing you dont have any solid exp in farming?? t without knowing your personal details i know the bank will ask you 4 questions that will also help you decide if this is the right path for you.
1.Any experience in farming?
2. will this be your JOB? ie going from PAYG to self employed?
3. What financial returns are you looking at and is it signed off by accountant with a full balance sheet
4. Business plan with exit strategiesWith the size your after and for a production farm, the max LVR you will be able to get is 55%-65% ( unless you have another security to back it up) ; rate would be 9.5% on a 20 years loan ( With good farming experience + ABN) …also even if we dont include the 60k debt into the finance ( which we can;t anyway) the bank will use the debt as part of their calculation in serviceability.
Not sure how your going to get around this …esp given you have no deposit..
Sorry for the bad/complex news- but it’s best to hear it here then from the bank ….
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
I would advise people to be very careful when dealing with overseas "lenders". Often these "lenders" string people along with promises of finance. They collect all of your personal documents and then 'assess' you. You will nearly always be approved subject to paying a fee of some sort. Guess what happens when you pay the fee?
Then consider they have all your personal documents, including identity documents!
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
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