G’day All
When looking to purchase a property with vendor finance terms and conditions, ( ie i want the vendor to leave $XXX in the deal for xx years).
1. Do these terms need to be declared to the bank when applying for finance?
2. If yes does the bank deduct the amount of vendor finance from the contract price and then loan X% against that $ amount?
cheers
wattoEdited by – [email protected] on 25/01/2003 07:50:09 AM
Hi there Watto !
long time no type….. [
]Our experience with this is:
i) Yes they DO want to know as it changes the amount of risk that they are undertaking, and in fact you would be in breach of your mortgage contract if you did not tell them!
ii) As per any loan; they have the property valued to assess its’ security value and determine the maximum % that they are comfortable with.
iii) They ask you to provide at least some %deposit
iv) They reduce that they are willing to provide so as that the % provided by the 2nd mortgagee (in this case the Vendor), the % provided by your deposit & the % provided by them totals 100%.
This is often considerably less than original LVR as they feel that their risk is increased, and also their costs as they need to deal with a third party.
NB to ensure that they do not get into a situation where their portion helps provide you with greater than 100% finance (say, when you refinance later on a higher valuation), they sometimes sign a deed with the 2nd mortgagee.
An example that we had up and running went as follows:
a) 2nd mortgagee (Vendor) – 20%
b) Purchaser deposit – 5%
c) 1st mortgagee (Bank) – 75%Total = 100%
This excludes additional purchase / set-up costs of about 5%, which we may have been able to Vendor finance if the Vendor would take an extra 5% unsecured.
Howzat ? [
]cheers, the Bruce
Hi The Bruce
Thanks for the info, I’ve never thought about it quite like this before.
One question – would this concept still hold when using lodoc finance through a non conforming lender? Usually for these you only need to sign a stat dec saying you can afford the repayments.Keep smiling
Felicity
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