Hi guys. Please give me some advice.
I am renting with my husband and purchasing my first investment property (already on a contract). I got an investment property loan. It's under my name only and the house will be only be in my name too.
Is it possible for us to move into this investment property if we don't claim any deductions on tax? Basically, is it ok to just live in it and just service the loan?
Thanks in advance for all advice.
Hi Phoeson,
If the situation is that you have an investment loan but you want to live in the property – yes you are able to do this.
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
You would be well advised to let your insurance company know that the property is no longer a rental but an owner occupier.
You might also want to look into whether you'd save some cash by refinancing. Perhaps the interest bill is higher for an investment property loan than it would be if you are living in it. Have a chat to a knowledgeable mortgage broker to see. Richard Taylor (userid Qlds007) and Jamie M are both brokers who contribute regularly on these forums.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Thank you very much for your replies.
At this stage, I'm not concerned about saving money by refinancing or anything like that. I just want to get in the property market. Basically, I am able to borrow a lot more on an investment property loan than on a normal home loan on my own. We can comfortably make the repayments on this investment loan as it isn't that much higher than the rent we've already been paying for the past few years. It's just nearly impossible to get a normal home loan because my husband is self-employed and has some credit card debts.
Originally, I wanted to rent it out. But we ran into our landlady and she sort of mentioned that her son wants her to sell the house we are renting so this idea has come up.
I don't plan to claim anything on tax, don't plan to do negative gearing, don't plan to do anything dodgy with claiming deductions. I just want to live in my own investment property and just make repayments, then in a few years, I can try to refinance and just get on a normal home loan (once my husband's finance is in a better position).
My biggest concern is that…would the bank be upset if I didn't rent out the property? If I made repayments on time (even planning to put a little extra in every month), would the bank ask for documents who was renting my property ? Would they ask me why I wasn't getting rent income in my bank account or getting any tax returns next financial year? Would they consider this 'lying' and take the loan off me if they found out?
In terms of bank asking for tenant document, I have asked my friend about it as she has a rental property that she is renting to her own parents with no agent involved. She said the bank doesn't care as long as the repayments are made. Is that true?
Thanks again.
Either way you must tell your bank and insurance company about the change of use of the property. It would not be very nice to have an incident such as a fire and have the insurance wangle out of paying you out because you didn't keep them up to date with what is going on with the property. Same goes with the bank. You cannot expect them to be covering off a debt of hundreds of thousands of dollars and you don't fill them in what the main purpose of the use of the property is…
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Hi!
Okay, I'm a little confused…
You want to buy a property to live in (rather than rent, with the hope of getting some capital growth, is that right?
If so then you are like the majority of the population who buy a home and hope for some growth. Am I missing something?
How has the lender come to the conclusion that the property is an 'investment' rather than a 'home'.
Thanks,
– Steve
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi Steve,
I haven't even thought about capital growth or anything like that. Basically, I saved up some money, went to the bank and asked if I had any chance of buying a property with this amount of the deposit. He did some figures and said I could buy an investment property and showed me how much I could borrow. I got a pre-approval, so I started looking. I asked him if I could just borrow to buy a house to live in. He said I could but I wouldn't be able to borrow as much and I would have to put my husband on the mortgage as well, which under his circumstance, would actually bring the borrowing capacity down even more. So I decided I'd buy an investment property and keep renting where we live now.
Then the idea came 'What if we want to live in this investment property?' which started this whole series of other questions whether it's possible.
Sounds like the purchase couldn't be done as an owner occupied due to limited borrowing capacity on the sole income and was purchased as an IP instead so the rent would be taken into consideration?
What are your long term plans with this property? Are you planning on turning it into an IP down the track? If so, it would be worthwhile setting the loan up as interest only with an offset now so you avoid paying down future deductible debt. If it's going to be a PPOR forever and you're not disciplined with money than principle and interest may be a better option.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Hi Jamie,
Yes, you're right. That pretty much summarizes the situation.
I actually don't have a plan to sell this property (at least not for the next 10 years). In fact, I was going to rent it out for a couple of years and then move in myself. But now the question is, can I move in now (if we have to move out where we rent now if the landlady sells the house)?
Hi Shahin,
So you are saying that it's ok for me to live in this property even if I'm buying it using an investment loan. Is that correct?
Hi Phoeson,
I am stating that there is nothing (lender, ATO or any other legislation) stopping you from living in the property even though you have taken out an investment loan.
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
Hmmmm,
I think you need to be careful about your intentions.
If you have a firm intention of living in it as a home then you probably have an obligation to disclose that to your lender since it sounds like they will be including rent in the calc (which you won't be receiving if you live in the property).
If it's just a possibility, perhaps it is different.
Of course, the point about making sure you can afford the repayments if interested rates rise (which they will, eventually) ought to be made.
– Steve
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Just to play devils advocate here, are you sure about that Shahin? Wouldn't the lender have a different view of this?
I thought that lenders had a policy where they could cancel a loan if they found out that false information was given in connection with the loan, especially if it had to do with granting approval, which it seems would be the case with rental income included in servicing that now won't be there?
Obviously it isn't intentional on the OP's part, but wouldn't it still be an issue?
Hi Tom,
My comment was not referring to providing false information. I am talking about circumstantial change. For example, the applicant had intentions to rent out the property but later decided to move in for a while, renovate and and rent it out later or whatever the circumstances are that changed from the time she had a view of renting it out to moving in. Realistically, the lender doesn't knock on your door and say 'hi im checking to see if you are renting this property out' nor do they have any rights so say that you are not allowed to live in this and must rent it out. Again there is nothing stopping the applicant from living in the property instead of renting it out either now or later. There is also nothing from stopping the applicant from renting it it for a week and decided to then live in afterwards.
Regards
Shahin
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
I'm with Tom on this one. There's a reason the deal couldn't be done as an owner occupied loan.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Thanks, guys:)
If we are debating about the bank's decision to lend me money based on rental income and negative gearing, wouldn't I fall in the exact same situation in 12 months time or whenever I decided move in my IP? Would they have to 'reassess' my serviceability?
What is the difference between me moving in IP after 3 months, or me moving in after 12 months due to changes in circumstances? If my landlady decides she wants to sell her house in the next 6 months, and I decide to move in my own IP, will the bank come take the loan off me even though I have been making regular repayments? or sue me for mortgage fraud due to the fact that I use it as primary residence instead of renting it out?
I've read that some people do it the other way round. For example, they would go get an owner-occupy loan, utilize first home buyer grant, enjoy lower interest rate, then use the property as an investment and then claim tax benefits. Would that be considered a mortgage fraud too??
I'm confused now….I think I'm overthinking this lol.
Well if there is a clause in the loan contract specifying you must notify the bank of a change in use of the property, then essentially they could pull the contract out from under you if you try to be sneaky and not tell them and they then find out (which is easy since all your records… post and such…. will come to your house). if you cannot afford to immediately repay the loan then one would think the bank can seize the security (ie the house) and sell it out from under you to recoup their funds. You will have no say in the sale price and may well end up losing money out of the deal and be left homeless.
Personally I could not live my life every single day worrying about such an event occurring. Far easier to be honest.
Either way, if it is a residential investment loan, it goes without saying that it is a loan for a property that shall be tenanted. If you move in the eligibility for such a loan is negated.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
I agree with you JacM. I don't want to move then have to live everyday with such worries.
So, what is the procedure of turning an IP into a primary residence then? Say if we move in after a year or two? Obviously, we will notify the insurance company that it will be owner-occupied so that they can modify their polices etc. But bank-wise, will they keep the loan the same?
The safe way forward is to just get a mortgage broker to go into bat for you with the bank. Jamie M who has already contributed to this thread is held in very high regard. Why not give him a call and let him handle it all for you. Mortgage brokers are paid their fees by the bank, so you do not actually have to pay the mortgage broker if that worries you.
It is just so much easier to get someone else to deal with the bank on your behalf. The brokers know how to approach issues like yours as they deal with them every day. You'd come up against it once or twice in a lifetime so you cannot expect to know the ropes.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
The problem is you are lying to get a loan.
The bank won’t give you a normal home loan because you can’t afford the repayments on top of your husbands income / credit cards and any other debts.
They’ll give you an investment loan because you can afford to repay the loan when taking into account the extra rental income you’d receive from a tenant.I think if you lie in your loan application and then your husband is out of work, or keeps spending on the credit cards, or interest rates rise or basically for whatever reason it turns out you can’t keep up the repayments and the banks then find out you always lived in the house and never had any intention of renting it out you could be up the creek without a paddle.
He needs to clear those credit cards..
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