Hi guys
It has been a while since I purchased my PPOR , now I am considering to purchase an IP.
I am looking to put down 5-10% deposit and will be IO. I live in Sydney, and look for a mortgage broker who can assist me and give some advices.
What the things I need to consider for this type of purchase?
I understand I will be paying LMI on which I want to put it on the top of the loan.
Is it a good time for buying? Just your personal opinion. I am looking for a $450K – $550K property with two bedrooms. Newer unit will be better. Area that I understand more is North West and Lower North Shore area. However I'm open to good advice.
Regards
Ferdinand
Sorry I have another question, what is the pro and cons having 5% deposit and pay LMi as compared to having 20% deposit and not paying LMI?
For an IP, which one is more beneficial?
Another question is, if my PPOR loan is currently on 2 year fixed and now 10 months to go, if I want to take some money out of it to fund more deposit (if second choice I asked prior to this), what is the option in order not to be considered as breaking the term? I am with Homeside.
Hiya Ferdinand
Is the deposit for the IP coming from savings or equity?
If savings, there's better ways to approach it. One way is by injecting the savings into the PPOR loan and reborrowing as a separate loan. This will maximise the tax deductions against your IP.
If equity, it's important that the loans are not cross collaterised. You need to set up a second loan against the PPOR which will fund the deposit/costs on your IP. You then set up a third loan to cover the remaining balance for the IP.
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]
Hi Ferndinandch
AT 95% lvr your lending choices are fairly limited and the credit scoring will be tough but if everything stacks up then no reason why you wouldn't look at going that route.
LMI is an opportunity cost and whilst it is a Tax deductible expense is still a cost.
Premiums vary in cost depending on the insurer but at 95% it certainly isn't going to be cheap.
If you raising the funds from equity then Homeside are not ideal as they charge a monthly fee per loan split.
A separate loan split triggers another monthly fee so you need to ensure it is structured correctly to reduce your overall costs.
Might just be a matter of biting the bullet and setting up a separate split given that the existing loan with Homeside is fixed.
Would need further information to provide more of an answer.
Cheers
Yours in Finanec
Richard Taylor | Australia's leading private lender
Thanks both
I have saving up to 10% of the IP price, I have atm is $50K and I can get up to $75K if I have to. Some properties in my mind are typically units and 2 bedders, with price around $500K. Hence, say it, I have deposit for 10%-15%.
Current PPOR is valued at $625K easily, and loan $375K – hence equity: $250K.
It will be joint application, I checked some borrowing power calc, and I can borrow up to $1.1m before the income of the IP taken into consideration. The only issue probably is that my wife is new to her job, 4 months, but a full time job. She has been always employed for the past 3 years, can be proved from her tax return. I am 4 years in my job.
Joint income: $140K per year before tax. No dependant.
Please advise further.
Hi Jamie, my PPOR is currently on fixed term, 1 year to go, from 2 years fixed term. I don't think I can inject my saving and redraw,.
Wouldn't use your own cash savings would set up a separate sub loan against the PPOR for probably 10% of the purchase price + acquisition costs.
This will reduce the LMI and give you more options.
You can always pay down the PPOR or place your current savings in an Homeside offset account once the loan comes off it's fixed rate.
Then look to take out a new standalone investment loan using a basic rate loan as you certainly need all the frills.
Don't see your wife's employment as a concern as long as she is not on probation. Even if she is there are many a lender who wouldn't have too many issues.
All looks good.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi Richard
That is a good advice indeed. Why you did not recommend using cash? One of the reasons that we want to buy an IP is because we don't want our money lying around in term deposit or even offset (my wife does not like offset, I know it is not smart).
When applying for a new loan, will they calculate projected rent income as a consideration into the amount I can borrow?
I will discuss further with my wife, and tomorrow will be a fresh new day. Good night Richard and thanks,
You wouldn't use cash and lose deductible interest deductions when you have a non deductible home loan.
Sorry but i can't see any reason why you wouldn't use an offset account on a PPOR loan it makes no sense but if you wife doesn't want to do so that is upto her.
Yes lenders will take a percentage of the assumed rent into consideration when calculating your serviceability for a new IP loan.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Ferdnand as Richard mentioned, there are better ways to use the cash than straight out as a deposit. If you don't like the money lying around use it to pay your existing PPOR mortgage, and then take out a loan for the cash amount against the PPOR and use that as the deposit. You still have the same total loan amount however it is advantageous as you maximise you deductibility come tax time.
Cheers
Tom
Hi Richard
Thanks for your advice. Not to overcomplicate matter, we plan to buy another PPOR in 5 years time (consideration is that when we have a primary school kid). Current PPOR will become an IP, same with new IP. My question is this will change any of your advice.
We are bit worried whether we can get loan for future PPOR, because we are looking for 3 bedders house, around $1M. If we don't repay both current PPOR and this IP, assuming we will have $300K of cash in the offset, that we can put as deposit for new PPOR. Is that a viable plan? If both, current PPOR and new IP will still have debt around $475K and $500K, but they will become IPs, what is the net effect on my borrowing power?
Hi Ferdinand,
It seems to me like you (and your wife) would be wise to sit down in front of someone like Richard to thrash out all of those aspects. Even as a layman, I see a number of good possibilities for the two of you. With a plan that is agreed to by both of you, you can do very well.
Re the current PPOR becoming an IP later, that can work in many cases, but there may be better ways too – e.g. is the PPOR in a position where it "suits" being an IP, or would you be better advised to sell it, and use the proceeds to buy 2 IP's in better rental areas?
There are lots of ways to cut this cake – choosing the best way that suits the two of you is a good starting point. Once you know which direction to head, your journey will be easier.
It is great to see you looking to your future and sharing in the collective knowledge on here. Well done,
Benny
Hi guys
We checked few properties, and there's one in particular stood out, it is $750K. If we want the finance to be organised ASAP, when is the earliest it will be ready?
At $750K, that we will rent it out, and the deposit comes from the current PPOR loan set up as a separate loan, how is our borrowing power?
I will try to talk to a mortgage broker tomorrow,, a Sydney based perhaps.
It all depends on the amount you want to borrow, the lvr and how quickly you can supply the documentation.
If you have restructured the Homeside loan like we suggested then maybe a week if not maybe 2.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hey Ferdinand,
Just to clarify is that $750k spend on knew PPOR or IP?
If IP, is it a house or other dwelling style?
Ben
Hi Ben
$750K is spending on IP. There are two in mind, first one is a house, with 700m2 land but I don't think I can subdivide it, great location and renovated already. The second one is actually $800K, with 1100m2 of land, and great potential of subdivision, as ample land in the front of the current residence, and it is about 450m2. I should have no problem with street access.
My current PPOR is only valued at $625K, with $375K loan in it.
Regards
Ferdinand
I think you need to do lots more research before jumping in.
Do you realise how much a $750K property will cost you to hold each week? With LMI and borrowing the deposit that's some serious negative gearing. Hope you have a high income.
Hi
I had a chat with my mortgage broker, and I think you are correct, hence we changed our strategy. At this moment, we will be looking for something around $500K, the holding costs will still be significant, however with proper research and planning, it should make business sense.
"negative gear with negative cashflow"? I thought you could only negative gear with positive cashflow? Wait im confused.
TheFinanceShop | Elite Property Finance
http://www.elitepropertyfinance.com
Email Me | Phone MeResidential and Commercial Brokerage
Dear Ferdinandch,
I was looking for your original question.
Is it a good time for buying?
Just your personal opinion.
I am looking for a $450K – $550K property with two bedrooms.
Newer unit will be better.
Area that I understand more is North West and Lower North Shore area.
However I'm open to good advice.
You might have seen no one choose to answer these. as this question need to be asked in some other forum as it is not appropriate to be answered by Mortgage brokers.
I appreciate you were able to find the property you want to buy.
I can suggest you to look at the property in terms of the potential negative gearing with negative cash flow it will be trap and not a good buy.
All smoke and mirrors ..,..,
Have no idea what he is talking about.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
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