"$305,000 Finance do I qualify "



From: Jack Moro

Hi All,

Its been some time since I last posted but
I am feeling itchy to buy again and seeking
practical guidance for my next purchase
(3Brm House in Blackburn,Melbourne, Rent about $260 pw, Purchase Cost about $290,000)

Realise this is very -ve but Capital gain looks much better than my other property's.

The level of -ve is what concerns me a bit
roughly $8000 PA

As finance is not my strong point.

My questions are

1. Do I qualify for $305,000 I/O loan to purchase I.P and cover associated costs

I have $100,000 equity in my first I.P
(Value 150,000)which is P&I payments are approx $175 P/W

I would like to keep this P&I so as to increase the equity and use this property,s equity to borrow against in future

2. My second I.P purchased earlier this year
is secured against first I.P.
Second I.P Value = $135,000, Loan $132,000, I/O fixed 5 years at 6.34%, Rent $8580 P.A Equity $0
(practically neutrally geared)

3. I own my own home but this must remain unencumbered

4. My income is $50,000 Gross

5. No car loans or other personal loans etc,credit card good etc

6. I have wife and 2 young children as dependants

I am uncertain how the banks look on dependants, what % of rental they calculate as income etc

All my loans are with, which bank ???

Thanks in advance for any help

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Reply: 1
From: Scott Marshall

I have thought about a few things when financing. Do you want to go to work to finance a 'good capital growth' I don't believe so. The fact you have asked the question probably means you are not comfortable with it.
Good Luck
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"Re: $305,000 Finance do I qualify"

Reply: 2
From: Terry Avery

From the information you have provided it would seem that you would need to
borrow 110% of the purchase price to cover purchase costs as you don't
mention any deposit. Your total borrowings would then be $501,000 with an
LVR of 87% on your valuation. Unfortunately the bank's valuation will come
in lower than that and they will demand more security so you then have to
choose between putting a large deposit into it or encumbering your house,
which you say you don't want to do.

The rental yield is 5% on the new IP and 6% on the other two so
serviceability may be a problem. You will probably find that they take
30-40% of your income as being required for living expenses. You say the
negative gearing effect will be about $8,000 p.a. or $154 a week. With a
young family can you really afford that much? Do you have income protection
insurance, life insurance or disability insurance to cover you if you lose
your job. Not having your own home encumbered won't stop you losing it
should things go bad and the bank forecloses because you lost your job or
had an accident and couldn't work. Also can you guarantee the rental stream,
is there enough flexibility in your plan to allow for vacancies and other
mishaps? Only you know the answer to those questions. Have you run the
figures through PIA to see the different outcomes?

So to summarise the answer to your questions, yes you would get finance if
you offer enough security but you are quite right to avoid encumbering your
own home (perhaps a LOC against your own home to pay a large deposit then
the bank won't need extra security, then you would have to focus on paying
off the LOC fast).

Hopefully you have done your due diligence on the growth in Blackburn and
the rental vacancies.

Hope this helps
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"Re: $305,000 Finance do I qualify"

Reply: 2.1
From: Les .

G'day Jack,

The other replies have already produced some very good suggestions - but, if you want to see for yourself if you are "in the ballpark", go to the "yeshomeloans" website and click on "How much can I borrow"

This is a NICE calculator - it adjusts as you input each figure. You can see the effect of 3 dependents, raise in pay, credit card borrowings, and get immediate feedback.

PLAY with the numbers - they can provide some very interesting information,


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"Re: $305,000 Finance do I qualify"

Reply: 2.1.1
From: Sim' Hampel

Oops... I read that as "yesh-o-melons"... interesting visuals !

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Reply: 3
From: Victor Mann

re finance your 1st ip to LOC. Pay 10k towards 2nd IP to make it 90% stand alone

Use balance of equity in first prop approx 80K to fund 3rd IP stand alone

max loan in your situation approx 250K but thats pushing!!!!

Good hunting

Victor (the broker)
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"Re: $305,000 Finance do I qualify"

Reply: 2.1.2
From: Cathy Baxter

And look at the effect of having a credit card on ability to borrow!

$14K credit limit reduced my borrowing capacity by $100,000!!!

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"Re: $305,000 Finance do I qualify"

From: Les .

G'day Cathy,

Makes a HUGE difference, doesn't it?

While I think of it, for those trying out this calculator, remember to include the projected rental INCOME for the property you are looking at buying - so long as it is an IP - it boosts the figure you can go for.

(I find it easy to remember those incomes that are in place, while tending to forget the "soon-to-be" income that your purchase will generate).


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