We have 2 IPs with oodles of equity however we are pretty maxed for serviceability. We want to free up some of this equity for further investing but the banks aren't keen on lending enough to make it worthwhile. Any suggestions on where we could go or how we could go about this?
Maybe you could use a No Doc loan where serviceability is not tested?
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
The Banks will take into account some of the rent (most will factor in 70%, but there are some that will use more – up to 90% I think) towards servicability.
The other thing you haven't mentioned is how much you wanted to spend on a property; the purchase price and the rent return may be a hurdle with getting finance, so you may want to look at something which is not expensive and has a pos or at worst, neutral cashflow.
Thanks guys. I have looked a little at no doc and may yet go this way though it's asking me to state I earn $74k, and will cost around $6k to do. I'm very aware of the leap we're taking if we get the next step wrong. Would u recommend doing this in the market at this time?
sarajh wrote:Thanks guys. I have looked a little at no doc and may yet go this way though it's asking me to state I earn $74k, and will cost around $6k to do. I'm very aware of the leap we're taking if we get the next step wrong. Would u recommend doing this in the market at this time?I'd recommend that before signing a document stating you earn $74k per annum, that you make sure that you do, in fact, earn $74k per annum. The way you've phrased this – "though it's asking me to state I earn $74k" causes me a little concern. Who is "asking you"? Surely not the document? Doesn't it just have a blank box that you need to fill out? Did the mortgage broker suggest this figure?
Cheers, F. [cowboy2]
With No Docs you should not be stating any income at all. And what is the $6000 for?
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
sarajh wrote:We have 2 IPs with oodles of equity however we are pretty maxed for serviceability. We want to free up some of this equity for further investing but the banks aren't keen on lending enough to make it worthwhile. Any suggestions on where we could go or how we could go about this?Hi Sarah,
I've spoken to a number of property investors who have encountered a similar problem and usually the solution lies in refinancing the existing investment property / ies into a felixible loan facilty that allows cash to be readily available for future purchases and then sourcing a lender who has low serviceability or looking at lenders with good Lo Doc loan products. No Doc loan products usually are a last resort as they have a very low LVR (60% or 70%) and higher rates that are not that appealing.
I don't know why it would be costing you $6000 either so definitely don't use that option.Cheers
MattThanks for your input everyone. The $6k is the refinancing costs (stamp duty and mortgage insurance) of taking all 3 props across to the proposed new lender. Perhaps my reality is that we need to wait for other factors to change – ie rental income to increase?
Thanks again
Hey Sarah,
Couple of points – yes, be very wary of a broker who is telling you how much to put on a no or lodoc form. very dodge!!
As far as servicability, there is always a way! all lenders have tips and tricks to add to your servicability, whether its inclusions that others don't use, or higher servicability on particular products that they offer..
There are some GREAT lodoc / nodoc products out there. Talk to your broker, they will recommend the best way for you to go
If servicability is an issue at the moment and you have loads of equity, you may want to think about refi-ing one of the houses only up to its limit (whatever that is for you, some people are happy to go 95%, some 85% no LMI..) rather than trying to put them all over.
Lia
Yup – if you have to state an income, that is 'lo-doc', not no doc. There are indeed some true no-doc products that are not much (if any) more interest rate than a lo-doc, but you will need to be very careful applying for a no-doc loan IF you have previously applied for a Lo-doc and quoted an income figure.
A 30% deposit will be a walk in the park, of course all depends what you want to achieve. Some people classify this as 'asset lending'. Regardless, you still need to be able to pay it back remember.
All the best.I wouldn't consider requiring LMI as having oodles of equity.
If you can, upstamp your existing loans to 80% so that no LMI is required.
Use that as your your deposit and only purchase something that will only require a small amount or no LMI.If servicibilty really is an issue for you and not just an on paper issue for the purpose of getting a standard loan, then maybe you should put off the next purchase for a while, no point stressing yourself out about it, you have to cover those unexpected expenses, or temporary lack of a tenant periods also.
I don't have a problem with borrowing beyond 80% and incurring LMI, but I only ever use it when I know the market is going up in the short term.
Mal
Think you will find the majority of lenders require the loan to be mortgage insured on a lodoc / nodoc loan where the LVR is > 60% even if the premium is built into the interest rate.
I am aware of a couple that will go to 80% or higher on lodoc / nodoc but there is always a catch with these.
Serviceability should not be an issue if the loans are structured correctly and there are some excellent lodoc / nodoc rates out there.
Richard Taylor | Australia's leading private lender
It might seem like an unpopular comment but what happened to borrowing withing your capacity? If you have declared your true income and no lender will approve the loan then perhaps you shouldn't be borrowing more. A no doc might be a solution but is it the right thing to do? I wouldn't think so.
sarajh
I'd have to side with Stuart on this one.
Any financial transaction that begins from a position summarised as "pretty maxed for serviceability" is unlikely to end well, IMHO. The question here is not whether you can increase your borrowings, but whether you should.
Remember, most pundits are talking a further .50% on interest rates this financial year in addition to the .25% the RBA is expected to announce next week.
Thanks again everyone for taking the time to share your thoughts. I totally agree regarding being able to service the increased debt. Since first submitting this topice we've gone back to our current bank again and they have extended finance to us, which we've taken up. Now for us I feel it's a question of managing it as wisely as possible.
Cheers
Saraj
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