All Topics / Finance / i know i can afford an i.p. but the bank doesnt

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  • Profile photo of GlennStakerGlennStaker
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    @glennstaker
    Join Date: 2005
    Post Count: 23

    i am keen to purchase an i.p. My bank have told me the most they will lend me is around 215-220k interest only for 5yrs which means my real purchase price will only be around 200k. This isn’t enough people!!!!

    i owe 310k on me ppor which is p+i. the contentious part of the issue is the value of my house. i see similar houses go on the market for around 380-410k…obviously they may not be selling for this price. i have done minor renovations which i think would improve the value of my home. i just am having trouble when they ask me to “guesstimate” the value of my house….i guess it’s 370k but who knows.

    in any case i feel i have enough cashflow to afford a loan of up to 240-250k. i earn around 74k p.a. and can expect that to continue to steadily rise. how do i get over the bump? is there a trick to this? will the low doc option help me? i dont know alot about low doc…

    regards
    G

    Profile photo of L.A AussieL.A Aussie
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    @l.a-aussie
    Join Date: 2006
    Post Count: 1,488

    If this is your first I.P I wouldn’t be too concerned about buying a more expensive property. You can do that on the next one!
    $200k is certainly enough to buy an I.P in many parts of Australia. You just need to re-adjust your idea of what you want to buy. Besides, cheaper properties quite often provide better rent returns which will help your cashflow.

    You can buy a well built, well positioned 2 x 1 free-standing or semi-detached villa unit in good condition (or bad condition if you feel inclined to be a renovator) for mid-high $100k’s all over the place. It may not be your ideal choice, but it’ll have a bit of land component, and if that’s all you can afford, then that’s all you can afford.

    As a general guide, banks will only let you borrow upt 35% of your income for loan repayments (including any existing loans, c/cards and/or car loans).

    Based on your income of $74k p/a, you can only repay $498 p/w approx.
    If you still owe $310k on your PPoR your commitment to that is most likely around $417p/w? and that is interest only (I assumed 7% interest). This doesn’t include any other debt. If my calculations are half correct then you probably are lucky to be able to borrow as much as the bank said.
    I would say your house value is not your problem – your serviceability seems to be more the issue to me.

    Of course, the bank may also take into account the rent return on the property to help your serviceability on the loan. This can help you to borrow more. Ask your bank what % of the rent they factor into the lending equation. Many will only allow 70% of the rent, some are a bit more.

    A low doc loan will get you a few more thousand in funds possibly, but there is usually a trade-off of slightly higher interest rates, probably mortgage insurance as well on the loan.
    This adds more pressure to your repayment amount and adds to your risk exposure. Not a good idea if you don’t have to do it.

    Cheers,
    Marc.
    [email protected]

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
    Join Date: 2003
    Post Count: 12,024

    G

    Just remember that each and every lender has its own serviceability scales and why you may not qualify with one lender you may find that with another you bolt in.

    This day and age most good brokers can negotiate lodoc / nodoc loans at competitive interest rates although you may find that this type of loan product is not required.

    Cheers

    Richard Taylor
    Residential & Commercial Finance Broker.
    Licensed Financial Planner. Ph: 07 3720 1888
    [email protected]
    Looking for life cover – We Guarantee to beat any quote you have in writing.

    Richard Taylor | Australia's leading private lender

    Profile photo of v8ghiav8ghia
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    @v8ghia
    Join Date: 2005
    Post Count: 871

    Hi G.
    A lot of what you ask will depend on whether or not you have a deposit for your planned property, or if you were planning on using existing equity in your own home. If this is the case unless you refinanced your home loan to around 90% of it’s value (and thus paid other fees etc, including a large chunk of ‘Lenders Mortgage Insurance’ – a once off charge) you have not really got much in the way of ‘equity’ to play around with based on the figures you supplied. A low doc loan, so called, is generally for self employed people/ business’s that are not able to or choose not to provide full financials. Again, generally you would require a 30% deposit to make the most of this arrangement, or at least 20%. (i know some lenders offer more – such as rams,and Wizard even offer a 95% ‘lo doc’ loan….) Lo doc loans have postcode restrictions too, so you cannot generally ‘lo doc’ a preoperty out in the middle of nowhere out in the rurals…..although your proposed budget sounds like that is not what you had in mind.
    Interest rates / fees increase reflected by the higher percentage you borrow with these lo doc loans as a general rule of thumb too.
    Congratulations on your excellent wage to service the loan. Again, depending on how you are situated as far as availalble deposit and equity go, some in your position may see this as a great time just to start saving some of that income – as if you were paying that ‘imaginery loan’ off, and in no time you will have a deposit. And one more pointer that may be of interest, some lenders will assess your ability to repay a lot more generously when using a ‘fixed rate ‘ loan. All helps the bottom line. Hope that has helped a bit rather than confused….And all the best. [strum]

    Profile photo of pilihppilihp
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    @pilihp
    Join Date: 2006
    Post Count: 26

    I’ve just noticed your query and feel I may have something to add.
    Some lenders will take negative gearing into their servicing calculations thereby giving you a larger borrowing capacity. Based on the limited detail you have given re your circumstances, I believe it would be in your interests to explore this option if you are still wanting to invest $250k approx. Any finance broker that has experience with investment loans will be able to help you. I can investigate your situation if requested.
    Regards,
    Philip Limbert
    APM Finance Pty Ltd
    0433 007 105

    Philip Limbert
    APM Finance Pty Ltd
    [email protected]

    Profile photo of GlennStakerGlennStaker
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    @glennstaker
    Join Date: 2005
    Post Count: 23

    well folks i just thought i would update u all. i now have a contract on my 1st I.P for 220k. a 2 bed in a block of 4 at palm beach on the gold coast, 250m from the surf.

    the wisest thing i did was speak to a finance broker rather than the bank manager. she came up with many new and inventive ways for me to get the money i needed. i was also fortunate enough to be getting regular overtime which they have now taken into account. i also convinced my bank manager to do a valuation on my house prior to putting an offer on a property which came back at 380k. this gave me the piece of mind i was looking for. i will be going I.O. for this loan.

    i am hoping my choice will have superior capital growth to the “further out” suburbs that i could have bought in. time will tell :)

    thanks for your useful tips people
    glenn

    Profile photo of v8ghiav8ghia
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    @v8ghia
    Join Date: 2005
    Post Count: 871

    Well done for making it happen Glenn. ….[strum]

    Profile photo of ducksterduckster
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    @duckster
    Join Date: 2004
    Post Count: 1,674

    It was a good move going to a mortgage broker as they will really have an interest in helping you achieve your goals and will work hard towards finding the right bank and product to suit your needs.
    And will have access to many lenders.

    Duckster Financial Services
    http://www.ducksterfinancial.com
    Helping to make the great Australian Dream come true !

    Comments are of a general nature and may not be relevant to your individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.

    Profile photo of HookhamCHookhamC
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    @hookhamc
    Join Date: 2007
    Post Count: 83

    I am after a NEW MB. PM the details if she is good and if you don’t mind.

    [cigar]

    Profile photo of Richard TaylorRichard Taylor
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    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Chris

    The last development deal you put to me you had negotiated 1% below SVR yourself wouldnt have thought any MB would have got it down to that for you especially on a 80% GR basis.

    Cheers

    Richard Taylor
    Residential & Commercial Finance Broker.
    Licensed Financial Planner. Ph: 07 3720 1888
    [email protected]
    Looking for life cover – We Guarantee to beat any quote you have in writing.

    Richard Taylor | Australia's leading private lender

    Profile photo of GlennStakerGlennStaker
    Member
    @glennstaker
    Join Date: 2005
    Post Count: 23

    so my i.p. went unconditional today….settlement is not until may 1 though. i’m interested to know what you finance ppl out there think i should concentrate on now. i’ve made this step of getting my first i.p., what next?

    at the moment:

    ppor – owe 309k valuation 380k P+I
    i.p. – owe 230k (inc fees) valuation 220k I.O. renting for only 190p.w.

    should i now concentrate on reducing my ppor debt as quickly as possible to free up funds for further investing by re-doing my loan once the amount owing comes down?
    should i go to I.O. on my ppor?
    should i continue to spend money renovating my quite old ppor? should i spend money increasing the rental returns on my I.O.? should i turn my ppor into a investment property and rent it out? should i stop spending so much time thinking and just relax and have a beer and be happy? [biggrin]

    happy to hear everyones input and suggestions so i can then form my own opinion….

    on another note i read in the gc bulletin yesterday that the gold coast may experience an increase of up to 40% in capital growth in or around 2008….although it is just speculation of course.

    cheers
    g

    Profile photo of L.A AussieL.A Aussie
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    @l.a-aussie
    Join Date: 2006
    Post Count: 1,488

    The order of those questions in the last post was wrong 65ens – you should have put the “havin’ a beer and relaxing” question first. That’s the priority!

    Anyway, the options are many, but my 2c worth;

    If you are planning to stay in the PPoR, I think it’s best to reduce that loan as fast as possible because the interest is not tax deductible.

    However, if you move out and rent your PPoR (not many people would do this due to the emotional attachment) then the interest IS tax deductible, so it may be better to not reduce it in this case.

    You can rent out your PPoR for up to 6 years without becoming liable for CGT on it.

    Cheers,
    Marc.
    [email protected]

    “we get sent lemons; it’s up to us to make lemonade”

    Profile photo of mortgageadvisormortgageadvisor
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    @mortgageadvisor
    Join Date: 2007
    Post Count: 31

    Hi There,

    There is no product called Interest Free Loan that gives you 20% of Property Value. E-mail me at [email protected] for a free consultation. 2 Minutes Loan Process.

    Equity Finance & Mortages Pty Ltd
    Mortagage Advisor mob: 0413 594 675
    Eric

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Adelaide Bank Shared Equity scheme is not available for an Investment property  – YET.

    Richard Taylor | Australia's leading private lender

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