Hi All,
I am in the market of purchasing my first property to owner occupy it for up to five years and then lease it out using the property as security to purchase another property.
My concern is that I am looking at apartments in the inner city suburbs of Northcote, Brunswick, Caulfield and Kew where a 1 bedroom off the plan unit is approximately $360,000 but all are just shy of 50sqm – we are talking marginally. Within my budget are units that range between 46 and 49sqm's.
I currently have a deposit of 10% ready to put down on a property but before I go ahead and put the deposit down on a property that I like, I want to be sure that I can get finance. I'm in a fortunate position where I don't have any loan repayments, nor have any defaults on my credit rating – and pay all my recurring bills on time.
Based on my deposit that I have been able to save for ($35,000) and the amount of the loan ($330,000) my LVR is 90.41%.
My question is, how will this LVR fit with the lenders in the market today? I am aware that I will need LMI as the LVR is above the 80% threshold.
Thanks in advance for your replies.
Regards
Chris
I should add that the dimensions listed in my original post are for "living areas" so excludes balconies/courtyards.
I should add that the dimensions listed in my original post are for "living areas" so excludes balconies/courtyards.
Tom,
Thanks for your reply.
You mentioned a strong application, what is defined as a "strong" application, if I may ask?
Also, it's worth noting, I wouldn't be paying a stamp duty as the property would be purchased OTP.
Cheers
Chris
I would also think, that if the property would to decrease closer to settlement, that my LVR would be higher as I would in theory be borrowing less?
A strong application can mean good borrowing capacity, a good asset position relative to age, minimal consumer debt and a low number of credit enquiries on your file.
Do some searches on Off the Plan or OTP – there's a lot of cons (as well as some pros) to consider.
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]
dymockc wrote:I would also think, that if the property would to decrease closer to settlement, that my LVR would be higher as I would in theory be borrowing less?But you would still be paying the same amount even if the property decreased. The loan will decease in size with the LVR based on the value, but the purchase price the same. So if the value decreased then you may have to chip in a bit of cash.
Consider a drop of 10% – could you come up with the cash to settle if this happened?
Plan for the worst (and 10% may not be the worst) and then hope it doesn't happen.
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
From my understand about Of the Plan purchases… when you sign the contract you agree to that price (e.g. $360k) if in 12-18months time when it is time to settle the property value decreases (e.g. to $300k) you are still locked into the original price of $360k. This is why obtaining finance might be difficult as the bank wouldn't be willing to lend you that amount based on the new lower value. This would mean you would need to come up with the difference…
One other thing that is worth considering is that the details of the property in the contract, may end up being different to what is built. This exact situation happened to a colleague of mine, who signed a contract for a 55sqm property, but when construction was completed (about 8 months after the advertised completion date) the property he purchased was only 49sqm. This meant the bank wanted to reduce the LVR by 20% meaning he would have to come up with additional 20% of the purchase price to settle.
He is currently trying to contest the contract through his lawyers, but the whole process has been a nightmare.
As Jamie mentions, there should be a lot of information on off the plan purchases that should be considered.
ygue6072 wrote:From my understand about Of the Plan purchases… when you sign the contract you agree to that price (e.g. $360k) if in 12-18months time when it is time to settle the property value decreases (e.g. to $300k) you are still locked into the original price of $360k. This is why obtaining finance might be difficult as the bank wouldn't be willing to lend you that amount based on the new lower value. This would mean you would need to come up with the difference…Yes, price is locked in. And recently many off the plans have been coming in with valuations low. This may be due to a few reasons such as:
1. Developers selling off remaining stock at a discount just to get rid of them.
2. Developers and/or agents inflating prices initially to gain high commissions
3. Market drop
What could happen is something similar to this:
buy for $500,000 with a 1 year settlement.
come to settle at the value is now $450,000
Bank is willing to lend you $450,000 x 90% = $405,000
The purchaser must still pay $500,000 so will need to find $95,000 cash.
The purchaser only budgetting for 10% of $500,000 = $50,000 so they are short by $45,000.
If the purchaser cannot settle they they will lose their $50,000 deposit and could be sued for the any loss the vendor may have suffered.
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
Hi Chris,
With OTP purchases as they are normally completed a long period after signing the contract, you need to keep in mind that:
1. Finance cannot be fully approved until closer to the settlement date;
2. The property may decrease in value and you may need to stump up more funds at settlement.
In terms of your security, it comes down to what the LMI insurer will accept as security for your LVR. A few lenders have a minimum of 50sqm excluding balconies, etc. while some will allow a minimum of 40sqm of living space if the property is in a "desirable and high demand capital city metropolitan location."
The suburbs you are looking at are more higher end than not, but it really is at the discretion of the LMI insurer. A strong application would help.
Also keep in mind that you would need to come up with funds for stamp duty, etc even if it is minimal though FHOG can be offset against this.
Cheers
Tom
Anything that helps de-risk the application for a lender and LMI insurer makes it more attractive for them to borrow you money. Jamie has mentioned a few items below that assist a strong application, another item can be a stable employment history (the longer in your current employment, the better).
Oh, and you will still be paying stamp duty even on an OTP purchase, it will however be calculated on the land value only at date of contract as building hadn't commenced.
Cheers
Tom
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