95% LVR for Subsequent IP's???

[House Hunter]

Hi Guys,
I have been snooping aroung SS for many months now and have been picking up lots of valuable information. My wife and I have just made our first purchase in Gympie, Qld so I decided to make the jump and post on the forum to get some feedback. Our first property was purchased with a 5% deposit (which did prove to be quite tedious). We will be living in it for the first 12months to satisfy the FHOG and FHOC, after which time we will be renting it out. My question is should the next IP we buy be with a minimal deposit (say 5-10%) or should we aim for 80% to negate LMI and for risk mitigation? I am sure some of the mortgage brokers on the forum might know more about debt limitations and satisfying banks. We didnt require the FHOG money for the settlement so I was thinking of using this to bankroll my 2nd IP purchase. I am looking to purchase a solid qlder or similar in a major regional centre of qld which I can do some renovations to make it CF+. Anyway, thanks and I look forward to you advice.
Cheers

 

[Aaron_C]

95% for an IP is fine as long as your cashflow and servicing is strong.

 

[Rolf Latham]

depends

go the max lvr you can get, but you need to weigh the cost of the LMI above 90 % + cap.

If the total loan amount is below 300 k then the premiums are still "reasonable"

Above the 300 mark, the end cash position of a 95 % without cap and a 90 % with cap becomes "similar"

Some lenders will still do 95 % + cap even for Investment Purposes

The logic behind the max you can get is that at some point you will likely want to buy a PPOR.

So instead of tipping 20% into an IP, go for 5 or 10, and accumulate the balance in an attached offset acct.

The end lvr ( and cash flow ) position from a risk point of view is similar, except, the balance of the 20 % "deposit" is now at your disgression, not the lenders.

What you would have done here is transfer risk from you, to the mortgage insurer.

This does assume of course, that you are "ok" with cash in the bank. Many arent.


ta
rolf

 

[Peter_Tersteeg]

There's no real problem with borrowing 95% for additional properties. I've got quite a few clients who've used this to kick start their investment portfolio.

At some point you'll need to wind it back to 90% or even 80%, but if you're confident in your ability to meet the commitments and you feel they're good investments, it's worth considering.

 

[Aaron_C]

Rolf is right in that LMI these days is getting more expensive (Genworth just put up prices). I might add that there is a limit to how many 95% lends you can do no matter what your cashflow is....as it depends on credit scoring and how comfortable the mortgage insurer is with your exposure to them.

 

[bnicklin]

Pretty much summed up everything I needed to know aswell. Cheers guys

 

[House Hunter]

Thanks for the replies guys. Rolf yes we plan on using our offset account to bank all money leading up to our next purchase. As far as the LMI is concerned, our next purchase will be a sub $200,000 IP so it will be manageable. We are hoping to buy the next property as soon as we have enough "genuine savings" for a 5-10% deposit.
Cheers

 

[monalisa]

Rolf is right in that LMI these days is getting more expensive (Genworth just put up prices). I might add that there is a limit to how many 95% lends you can do no matter what your cashflow is....as it depends on credit scoring and how comfortable the mortgage insurer is with your exposure to them.

Hi Aaron - how do we work out how many purchases are acceptable before the mortgage insurer(s) starts having issues? ta

 

[Peter_Tersteeg]

Hi Aaron - how do we work out how many purchases are acceptable before the mortgage insurer(s) starts having issues? ta

That's a very open ended question which will depend on what you buy and your circumstances. What will the yields be, what will the values be? What's the vital figures of your balance sheet and what are the banks policies of the day?

All these things could change with any given deal and the result may well depend on the lender at the time. It's a question best assessed on a deal by deal basis. I've seen pleny of cases where things got to the point where LMI would no longer with an individual, only for things to change a couple of years later and they can apply for 90% loans again.

 

[monalisa]

That's a very open ended question which will depend on what you buy and your circumstances. What will the yields be, what will the values be? What's the vital figures of your balance sheet and what are the banks policies of the day?

All these things could change with any given deal and the result may well depend on the lender at the time. It's a question best assessed on a deal by deal basis.

Thank you Peter

 

[tobe]

Thanks for the replies guys. Rolf yes we plan on using our offset account to bank all money leading up to our next purchase. As far as the LMI is concerned, our next purchase will be a sub $200,000 IP so it will be manageable. We are hoping to buy the next property as soon as we have enough "genuine savings" for a 5-10% deposit.
Cheers

Genuine savings are not mandatory for investment purchases. Usually simply having equity in the existing PPOR is sufficient. the funds to complete the purchase can come from any source.

 

[Rolf Latham]

Hi Aaron - how do we work out how many purchases are acceptable before the mortgage insurer(s) starts having issues? ta

A clear line in the sand for many is where the DUA (Delegated underwriting authority from the LMI provider) to cover off their own deals stops
eg

cba 1mill then to GE

AMP 850 then to GE


etc


However, the DUA may get into issues way before then too

ta
rolf

 

[House Hunter]

Genuine savings are not mandatory for investment purchases. Usually simply having equity in the existing PPOR is sufficient. the funds to complete the purchase can come from any source.

Tobe we don't have any equity in our property. Settlement was only on Friday and although it was discounted from the asking price ~$30,000, our lvr was 95% which would still put a new valuation >80% lvr. I do have a newbie question, how often does the astute investor leverage equity from their existing properties? I know it will depend on a case by case scenario, local market conditions etc but I am sure someone will have a ballpark figure. And if you were to withdraw equity from a loan, what would be the minimum amount to withdraw? Thanks for the replies so far everyone!
Cheers

 

[tobe]

Tobe we don't have any equity in our property. Settlement was only on Friday and although it was discounted from the asking price ~$30,000, our lvr was 95% which would still put a new valuation >80% lvr. I do have a newbie question, how often does the astute investor leverage equity from their existing properties? I know it will depend on a case by case scenario, local market conditions etc but I am sure someone will have a ballpark figure. And if you were to withdraw equity from a loan, what would be the minimum amount to withdraw? Thanks for the replies so far everyone!
Cheers

Bit of a loaded question. perhaps an 'astute' investor is currently sitting out of the market and in cash? In practice, with todays lending policies it would be dificult to leverage existing properties within 6 months of purchase without siignificant reno's etc to increase valuations, especially when LMI is involved.

In your case, it might be prudent to have another lenders valuation performed. If they agree with the ball park figure, the new lender would refi with cash out for the new purchase. you might be able to refund part of the original LMI (and its tax deductable anyway) and go ahead with the next purchase now. this scenario is the higher risk strategy than saving the deposit yourself, but it is technically possible from the details you ahve shared here. Many astute investors use LMI whenever they can as the LMI cost is more than offset by the property gains.