When applying for a loan I've noticed the 'purpose of loan ' is documented on the contract.
Can stating it as primary residence or investment property cause issues at tax time if the property isn't used for the stated purpose? i.e. purpose of loan is stated as primary residence but say I changed my mind during settlement and decided to rent it out from day 1 — would this cause problems when claiming interest and expenses? Or vice versa — purpose of loan is investment property, but I decide to live in it — would this cause problems when claiming CGT exemption?
Just trying to figure out the power of those three little words on a loan contract.
It's not normally an issue turning a PPOR into an IP or vice versa down the track as your circumstances change.
However, you are supposed to inform the lender when taking out the loan whether it's going to be owner occupied property or an investment property.
Having said that – if you qualified for the loan as an owner occupied property – then you shouldn't have any dramas qualifying for the loan as an investment property.
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]
Thanks for the reply Jamie,
The scenario I was thinking: say I am looking to move interstate, but have not yet secured a new job. I have found a property that I would like to live in — and would be interested in purchasing it as a PPOR but would not know about a job for a number of months. If no suitable job became available I would be happy to rent the property out and keep it as an investment.
Should I state the purpose of loan is for PPOR or IP? Any benefit going one way rather than the other?
Hmmm… just thought that one through and think I may have made my own questions null and void…
In the above scenario, I imagine I can't even apply for a PPOR loan on a house in one state, while employed in another — I expect I would need a new job contract before I can apply for an owner occupied loan that is obviously thousands of km's away from my current place of employment. So it would have to be IP. Would that be correct?
If you are applying for a loan whether it is ppor or ipod the banks are concerned about serviceability. If you are changing job or newly employed you may have to wait out your probationary period before approval of finance.
The difference between applying for an owner occupier loan and investment loan is that with an investment loan, you can take into account future rental, thereby allowing you in the lenders eyes to service the loan easier, and theoretically borrow more than what you would if it was owner occupier.
There is a question that lenders ask which is if you know of anything in the near future which may affect your ability to repay the loan. This allows the lender to assess risk. So if you knowingly had the intention of starting it out as an investment, but were going to make it your PPOR and didn't tell the lender, you could be in all sorts of bother. Likewise with an employment change.
Cheers
Tom
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