All Topics / Finance / LOC Setup

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  • Profile photo of TompTomp
    Member
    @tomp
    Join Date: 2010
    Post Count: 3

    I am in the process of setting up a LOC against an unencumbered property worth approx $400,000. Given I don't want to pay LMI the LOC will be at 80% of the valuation or close to $300,000.

    The broker I have been speaking to is telling me that the lender will only give conditional approval until I can prove what the funds are being used for. Does this sound right? A couple of years ago where I did this identical process with similar sums there was no such requirement. Unconditional approval was given as soon as the valuation came through.

    In this case I will be using the LOC to buy an investment property that will undergo some renovations prior to letting out. The lender will only unconditionally approve the funds until I can give them a copy of the purchase contract.

    Is this the new norm where we have to prove what the funds are being used for prior to getting a LOC, even though sufficient security has already been provided in the first place? Does this sound right?

    Thanks!

    Tom

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

    Hi Tom

    Hate to say your Broker is correct.

    In fact some lenders will not even issue the letter of offer until such time as you give them a copy of the purchase contract or similar to evidence where the funds are going.

    Not sure who you are going through but just get your Broker to switch lenders and use someone who doesnt impose such condition or where he can put some weight on the lender.

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
    Email Me | Phone Me

    0-40 Properties in a decade with a unencumbered portfolio value in excess of $40M. Ask me for a copy of my API Interview.

    Profile photo of number 8number 8
    Participant
    @number-8
    Join Date: 2010
    Post Count: 333

    I had a $400k equity release settle two weeks ago….. The process is not a certainty for everyone.

    http://www.birchcorp.com.au

    Profile photo of secretgnomesecretgnome
    Member
    @secretgnome
    Join Date: 2003
    Post Count: 33

    Hey,

    It really depends on the lender. The bank is asking you what you're going to do with the money as they don't want you investing it in something really risky. To give an example, you might be using that money as your equity in a highly speculative industrial subdivision project. If that project went sour, you could easily owe the bank more than however much you thought that industrial land was worth.

    Sounds like what you're doing is no big deal – I'd just show them the purchase contract if you have it, or tell them exactly what sort of property you're looking at purchasing. They'll probably be ok with this.

    On the flip side, you sometimes get a dodgy bank manager who won't find out your full story and that's why sometimes people get away without telling their bank what the cash is for.

    Profile photo of god_of_moneygod_of_money
    Participant
    @god_of_money
    Join Date: 2008
    Post Count: 970

    I think some of the banks have changed their lending criteria.. this month
    They need to know where the funds go before they are happy to release the funds.

    There is always a high chance they might decline or increase the rate if purchasing block of units etc..

    Profile photo of ankitjainankitjain
    Participant
    @ankitjain
    Join Date: 2006
    Post Count: 27

    This just seems to be really bad time to change lending criteria.

    I, for example, was thinking about using funds of upto 80% (increase borrowings from my current level of 70%) of my property valuations to fund other investments . Some options being considered include…

    A)  Invest in mutual fund

    B)  A property purchase overseas (via my family).  Explaining all of this to the bank and getting property papers etc seems difficult.  

    I am taking loan against my current property – Really to me it seems to be a case of it should be none of your (banks) business what I do with that money as long as I am meeting repayments.

     

    What is a sensible reason to give to a bank manager which he should not be able to refuse?

    Profile photo of god_of_moneygod_of_money
    Participant
    @god_of_money
    Join Date: 2008
    Post Count: 970

    Sorry, I disagree with you…
    Banks have every rights to decline your loan…

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213
    ankitjain wrote:

    This just seems to be really bad time to change lending criteria.

    I, for example, was thinking about using funds of upto 80% (increase borrowings from my current level of 70%) of my property valuations to fund other investments . Some options being considered include…

    A)  Invest in mutual fund

    B)  A property purchase overseas (via my family).  Explaining all of this to the bank and getting property papers etc seems difficult.  

    I am taking loan against my current property – Really to me it seems to be a case of it should be none of your (banks) business what I do with that money as long as I am meeting repayments.

     

    What is a sensible reason to give to a bank manager which he should not be able to refuse?

    You will need to tell them where you are going to invest it. ie managed funds etc. They may want further proof or even insist on controlling the payment of funds.

    Banks will want to know what you are investing in as if you were to gamble the money away that is reducing your net worth and will adversly affect their position if they need to take recovery action.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://structuring.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

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