Forums / Getting Technical / Finance / LMI and deposit

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  • Profile photo of TMTM
    Participant
    @tmaj
    Join Date: 2015
    Post Count: 13

    Hi guys,
    I know that LMI is added if you don’t have an 80% deposit for a lot of the banks. What I would like to know is whether you can borrow the stamp duty and legal costs etc.
    For instance if I buy a $200,000 home. And I manage to scrape enough together to get the $40,000 deposit but don’t have the extra for the stamp duty and solicitors fee and other losings costs etc will I still have to pay LMI. In a couple of months I could afford all of it but I found a property I like and are thinking about my options for now. The other thing I have been thinking about is seeing if I could get the owner to do vendor finance for the first couple of months or get a long settlement 5 months or so to make sure all my bases are covered.
    Option 1 – hopefully buy with 20% deposit and no LMI and get additional expenses added into loan
    Option 2 – Long settlement (5 months or so)
    Option 3 – Vendor finance
    Do these options sound realistic ?
    Cheers guys

    Profile photo of Jamie MooreJamie Moore
    Participant
    @jamie-m
    Join Date: 2010
    Post Count: 5,069

    Hiya

    You can borrow extra for stamps/costs.

    The only way that is possible if you have another property you can borrow equity against.

    Cheers

    Jamie

    Jamie Moore | Pass Go Home Loans Pty Ltd
    http://www.passgo.com.au
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    Mortgage Broker assisting clients Australia wide Email: [email protected]

    Profile photo of TMTM
    Participant
    @tmaj
    Join Date: 2015
    Post Count: 13

    Unfortunately I don’t have another IP. I guess that takes me back to the drawing board of options 2 and 3

    Profile photo of Corey BattCorey Batt
    Participant
    @cjaysa
    Join Date: 2012
    Post Count: 1,010

    Do you have a PPOR, or is this your first purchase period?

    Corey Batt | Precision Funding
    http://www.precisionfunding.com.au
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    Investment Focused Finance Strategist - servicing Australia-wide

    Profile photo of TMTM
    Participant
    @tmaj
    Join Date: 2015
    Post Count: 13

    This is my first purchase. And am considering living in it as it is cheaper to pay off a mortgage than rent.

    Profile photo of DeanCollinsDeanCollins
    Participant
    @deancollins
    Join Date: 2015
    Post Count: 376

    credit card the closing costs? especially if you will possibly have most of the costs by settlement time eg 6 weeks

    The only question I have though is if you have this many issues coming up with closing costs + 20% deposit……maybe you aren’t quite ready to buy your own place?

    Profile photo of PetePete
    Participant
    @pjewitt
    Join Date: 2015
    Post Count: 50

    I have to agree with Dean here. Particularly with your first purchase, if coming up with the cash needed is stretching your finances to the absolute limit, then buying now is probably not a good idea. Remember, there will always be another house!

    cheers
    Pete

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,010

    TM

    Why don’t you consider using some of your 20% deposit to cover the Stamp Duty and acquisition costs.

    Go for a 90% loan and cop some LMI. It can be your opportunity cost friend in this climate as well as being a Tax deductible expense.

    Be careful with a long settlement as you wont be able to lodge a finance application until you have proof of funds to complete and means you are unconditional without any guarantee that the Bank will stomp up the cash to complete.

    VF is an option and certainly we are seeing more and more enquiries for such product.

    Cheers

    Yours in Finance
    0-40 Properties in a decade. Ask me how.

    Richard Taylor | Mortgage Broker helping investors build their wealth thru property
    http://www.mortgagecapitalaustralia.com.au
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    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 TMTM
    Participant
    @tmaj
    Join Date: 2015
    Post Count: 13

    Thanks for all the tips guys.

    Pollardis
    Participant
    @pollardis
    Join Date: 2015
    Post Count: 1

    The only way that is possible if you have another property you can borrow equity against.CheersJamie

    Hey Jamie,
    Just to clarify on your response here – Are you saying that you cannot borrow stamp without having equity to borrow against?

    I’m sure you are, but I found it a little confusing the way you worded that.

    Cheers,

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,366

    Hi Pollardis,

    The only way that is possible if you have another property you can borrow equity against

    I agree with you – the wording probably should have looked more like this :-
    The only way that is possible if you have another property with equity you can borrow against

    But then, I don’t believe that is the ONLY way – with the smallish amounts needed, a Personal Loan, or even a Credit Card could do the job.

    Benny

    Profile photo of PLCPLC
    Participant
    @plc
    Join Date: 2012
    Post Count: 400

    Hi Pollardis,

    The only way that is possible if you have another property you can borrow equity against

    I agree with you – the wording probably should have looked more like this :-The only way that is possible if you have another property with equity you can borrow against
    But then, I don’t believe that is the ONLY way – with the smallish amounts needed, a Personal Loan, or even a Credit Card could do the job.
    Benny

    That is true, but those debts would need to be disclosed which reduces your borrowing capacity by a greater amount than borrowing it against another property. And the interest charged on those borrowings might actually mean that LMI could come out cheaper in the long run.

    Cheers

    Tom

    PLC | Phoenix Loan Consulting
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    Melbourne based Mortgage Broker | Making Finance Simple

    Profile photo of BennyBenny
    Moderator
    @benny
    Join Date: 2002
    Post Count: 1,366

    Hi PLC,
    Of course, you are correct – “running the numbers” should always be done prior to making such a move.

    My response was another option (as opposed to “the ONLY way”) but it certainly may not be the best option – unless there was no other way. Then, the choice then comes down to
    “Do I walk away from a screaming-hot deal because I don’t want to use a Personal Loan, or is there so much upside in the deal that even the use of a Personal Loan won’t keep me away from it?”

    Good warning though – thanks !! ;)

    Benny

    Profile photo of Wikibank AaronWikibank Aaron
    Participant
    @wikibank
    Join Date: 2015
    Post Count: 6

    I bought for the exact reasons you posted few years back and I would really not recommend doing for that reason.

    Although I am happy for the lessons I have learned being a home owner and landlord, I would be in a much better financial position now.

    Even though the mortgage might be cheaper than rent, you have to think about all the extra headaches that go with owning property. Bills, council rates, insurance, maintenance costs and so on. Also what if you lose your job or want a change in career or want to start your own business? Not having that commitment is going make your life just that much easier.

    However if you are set that this is the right decision for you, there are a couple of options which I think are better than a personal loan.

    You mentioned that a long settlement will give you enough time to save up for stamp duty. You could switch your credit card to a card with a lower cash advance interest rate than increase your credit limit and do a cash advance (this will not increase your commitments by too much on the banks calculator as most banks calculate your credit card commitment based on approx 2.5% of your max limit). If your bank does not offer a cash with a low cash advance limit then you can balance transfer to another credit card with a lower rate. Just be aware to check your borrowing capacity allows your to have two high limit credit cards.

    Most banks do not like customers using cash advance on their credit cards to cover purchase costs but if you have already done the cash advance prior to borrowing they can’t really ask you “where are you getting the money to cover stamp duty”.

    Wikibank Aaron | Wikibank.com.au
    http://www.wikibank.com.au
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    Finance Blogger| Helping the general public make better financial decisions

    Profile photo of Daniel LuderDaniel Luder
    Participant
    @dlueder
    Join Date: 2012
    Post Count: 8

    I know that LMI is added if you don’t have an 80% deposit for a lot of the banks. What I would like to know is whether you can borrow the stamp duty and legal costs etc.

    I used to borrow the lot apart from stamp, but times have changed and you would need a very good and shrewd broker with plenty of award rating to pull this off for you now.
    Main thing if you think the property is right, you get the foot in the door. Cost you…., but your accountant may tell you exactly how to write off LMI so you know. I have done this wrong an right in the past, but my action to do it got me ahead in life. Since then there are many people watching,….trying to safe for the perfect first place.

    • This reply was modified 3 years, 12 months ago by Profile photo of Daniel Luder Daniel Luder.
    • This reply was modified 3 years, 12 months ago by Profile photo of Daniel Luder Daniel Luder.
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