$55k.. do I have enough deposit for my goal?

[Paterson00]

Hi all,

now that plan A has fallen over I would noe like to buy our first owner occupied home and also our first investment property.

We have $55k saved and around $25k of that is genuine savings and other funds drawn from a remortgage of our UK house.

I would like to know how I can acheive buying two houses on this and what our budget would be for each home. I would expect that around the $450k for owner occ home and around $250k for the invesment I would be able to achieve this. Please note that I live in WA and I will have the first home owner grant available and also the waiver of stamp duty on the first $430k of the purchase for owner occ.

Could anyone tell me what my budget would be? I have all this detail with a broker right now and they are also working on this for me.

Regards,

Paul

 

[VaSSagO]

Borrow 90% with ING for the PPOR ($1 LMI deal), so $45k deposit less $10k grant (assuming new home)

That will leave you $20k for your IP, possible if you can get a 95% lend.

 

[Jess Peletier]

Realistically it's very difficult to get a 95% lend for an IP. There is only 1 lender on my panel who will look at it, and then you have to be pretty much perfect in every way.

Based on your numbers and assuming WA purchase, you're not leaving anything for settlement etc.

Postcodes might come into it too - not sure where (in WA) can you buy a house for sub $250k?

 

[Jamie M]

Hi Patterson

Why not give Jess above a buzz - she's on your side of the world. I'm sure she'll be able to run some scenarios for you and work out what's achievable.

Cheers

Jamie

 

[Corey Batt]

Realistically it's very difficult to get a 95% lend for an IP. There is only 1 lender on my panel who will look at it, and then you have to be pretty much perfect in every way.

I'm not sure why you think there's only one lender which will look at IP finance at 95%?

OP: If you're looking at making a PPOR purchase and investment, it may be worthwhile placing the entire funds as a deposit for the PPOR, then drawing from the equity for a followup purchase. This will minimise your non deductible interest, whilst maximising your deductible. As Jess alluded to you may not have enough funds to complete 2x purchases, but you aren't far off it.

 

[Redom]

Borrow 90% with ING for the PPOR ($1 LMI deal), so $45k deposit less $10k grant (assuming new home)

That will leave you $20k for your IP, possible if you can get a 95% lend.

I have a soft spot for super aggressive strategies - I like your ambition!

This is decent advice - could be a great way to go about it and get reasonably close to achieving your goal. Also saves a bucket load in LMI.

Realistically it'll be hard to close a second deal with 25k, but you may find an innovative way to do it. E.g. try and knock out a 97% lend (Westpac are a decent bet). On a 250k purchase, you'd have to contribute ~6% in deposit + stamp duty and closing costs...can get very close/just over.

Cheers,
Redom

 

[Redom]

I'm not sure why you think there's only one lender which will look at IP finance at 95%?

OP: If you're looking at making a PPOR purchase and investment, it may be worthwhile placing the entire funds as a deposit for the PPOR, then drawing from the equity for a followup purchase. This will minimise your non deductible interest, whilst maximising your deductible. As Jess alluded to you may not have enough funds to complete 2x purchases, but you aren't far off it.

Hmm, this MAY introduce valuation risk though. Putting all the cash in a NEW property (required for grant) and expecting to draw out equity at high LVRs = dangerous combo.

It can be done, but it will require your valuation to hold after the stock is not considered new (often moves slightly backwards), and will need a reasonably strong application to draw out the equity in LMI territory. Plus you're at the whim of any policy change in lending - the regulators are cracking the whips on banks and high LVR cash-outs could easily become more difficult to obtain.

Nonetheless, the mix between deductible/non deductible is good (using borrowed equity to fund IP) - but not sure the benefit outweighs the financing risks created.

Cheers,
Redom

 

[Corey Batt]

Hmm, this MAY introduce valuation risk though. Putting all the cash in a NEW property (required for grant) and expecting to draw out equity at high LVRs = dangerous combo.

It can be done, but it will require your valuation to hold after the stock is not considered new (often moves slightly backwards), and will need a reasonably strong application to draw out the equity in LMI territory. Plus you're at the whim of any policy change in lending - the regulators are cracking the whips on banks and high LVR cash-outs could easily become more difficult to obtain.

Nonetheless, the mix between deductible/non deductible is good (using borrowed equity to fund IP) - but not sure the benefit outweighs the financing risks created.

Cheers,
Redom

This all isn't an issue if you use the correct lender and apply directly after settlement (lenders will generally recycle vals for x months after settlement). Another hit, but will drag down that PPOR debt just that bit more, providing tax savings and a slight boost to serviceability.

The other option being to use a global limit and re-tinker the Deductible vs Non-Deductible limits to repeatedly erode the PPOR non-DD debt.

 

[Jamie M]

This is decent advice - could be a great way to go about it and get reasonably close to achieving your goal. Also saves a bucket load in LMI.

Saving LMI is sweet - but cashout with ING (especially at 90%) isn't always fun.

OPs servicing would have to be ok too - because ING will want to see that the IP purchase services on their calculator (even if they're not taking it as security)....and as we all know, ING's servicing calc is rubbish.

Paul - are you buying new or old?

Cheers

Jamie

 

[Paterson00]

I should maybe add that I do have the ability to buy just the ppor first then continue saving for the IP deposit but my fear with this is that my wife will want to start dressing the ppor and the deposit will dwindle or savings will not happen. I would like to find a way of doing it so we are in the market before that happens.

I am able to save about $3k per month after xmas is out of the way etc. Maybe Feb to carry on saving. Would an extra $6k make a huge difference to this situation?

 

[Paterson00]

I am buying established Jamie as I want to get out of the rental circle by March. We could buy the IP first, move into that then build to get the $10k, that is an option.

 

[Redom]

Saving LMI is sweet - but cashout with ING (especially at 90%) isn't always fun.

OPs servicing would have to be ok too - because ING will want to see that the IP purchase services on their calculator (even if they're not taking it as security)....and as we all know, ING's servicing calc is rubbish.

Paul - are you buying new or old?

Cheers

Jamie

Why???

OP could just buy the PPOR at 90% and then worry about the IP when ready down the track some time.

OP wouldn't need to cash out above 90% (and if they did, ING is no good as they'll pay LMI). OP would have $20 odd thousand left that they intend on using some time down the track once they have more cash available.

If OP settles on PPOR first, wouldn't need to put any future POSSIBLE transaction into ING's servicing assessment.

While ING is conservative and tight - with a semi decent income and no other property expenses, ING are generally OK to purchase first PPOR.

Cheers,
Redom

 

[Redom]

We could buy the IP first, move into that then build to get the $10k, that is an option.

By the 10k do you mean the grant? I'm not that up to speed with WA laws, but purchasing an IP may implications on your ability to access grants/duty concessions.

In Cbr, if you own an IP, you wont get the duty concession.

If you haven't already, I'd speak to my conveyancer/local OSR to confirm that you can do this.

Cheers,
Redom

 

[Paterson00]

What does OP mean?

 

[Jess Peletier]

I'm not sure why you think there's only one lender which will look at IP finance at 95%?

Some say they will, but in reality LMI usually takes it above the LVR cap. There may be other lenders that aren't on my panel though - who do you use? Always happy to learn new tricks

 

[Redom]

What does OP mean?

Haha sorry Paterson - Opening Post.

 

[Jamie M]

OP could just buy the PPOR at 90% and then worry about the IP when ready down the track some time.

I'm saying WHAT IF he has to access equity in his PPOR at some point? What if he needs to cashout up to 90% LVR (not above 90 - because that ain't happening with ING or most other lenders)?

Have you done an equity release with ING at 90? Not fun. That's all I'm saying. Therefore - whilst the LMI saving is great, more careful consideration needs to be taken in terms of what he/she plans on doing with that property in the future before committing to ING for the LMI savings.

Not saying it's a bad option - but more consideration needs to be given.

Cheers

Jamie

 

[Redom]

I'm not sure why you think there's only one lender which will look at IP finance at 95%?

Some say they will, but in reality LMI usually takes it above the LVR cap. There may be other lenders that aren't on my panel though - who do you use? Always happy to learn new tricks

Westpac Group (St George, BoM), NAB (although credit scoring can tank deals), Bankwest (run the other way), CBA, ANZ (for existing customers), LoansAve (...don't use them!)...

Plenty of lenders, although yes, this deal is difficult (but definitely possible) to get through.

Cheers,
Redom

 

[Jamie M]

What does OP mean?

Original poster - it's you

Cheers

Jamie

 

[Redom]

I'm saying WHAT IF he has to access equity in his PPOR at some point? What if he needs to cashout up to 90% LVR (not above 90 - because that ain't happening with ING or most other lenders)?

Have you done an equity release with ING at 90? Not fun. That's all I'm saying. Therefore - whilst the LMI saving is great, more careful consideration needs to be taken in terms of what he/she plans on doing with that property in the future before committing to ING for the LMI savings.

Not saying it's a bad option - but more consideration needs to be given.

Cheers

Jamie

Nooo - haha going by SS - something that's just not worth trying!

The LMI saving is quite juicy at 450k price point (~10k?) - that if there's ever a need to cash out, the cost of refinancing to another more loose lender would be peanuts in comparison. Wouldn't have paid any LMI, so there's not much to lose.

Cheers,
Redom