Accessing equity to finance new ppor

[Obaba]

This is my first post but I have already learned so much from the forum. Now I am hoping I get some advise for our specific situation.

PPOR
Estimated value $ 300,000 (loan $120000 i/p)

IP
Land value $ 240,000 (gift from in law)
2 x3bd duplex on construction (loan $400,000+ I/o with off set)
Estimated rent 2 x $400-420

Both loans are from Heritage bank. Both titles are my name only.
Our combine income is around $80,000 and I earn much less from my part time work.

I am looking into one particular property of $ 700,000 for ppor. It is 1800sqm with old house at front.

The plan is to live there for a few year before building new house at back, knock down the house at front to build new house (or duplex) or sell as vacant land after being subdivided.

Question is what is the best way to finance using equity we have? Selling ppor to my husband is one thing comes up in my mind. Or selling one of unit can be possible too. We'd like to see all possibilities for educating ourselves.

 

[Aaron_C]

How much is the duplex worth after construction? Given that Heritage's servicing is pretty lousy for more than 1-2 properties you would have to switch lenders to get more equity out of either property.

 

[Obaba]

Thank you for a quick reply, Aaron. The duplex is still one title to keep holding cost down. I saw similar newish duplex was marketed as $420,000 recently. I am happy to look at other banks but I am not so sure how/when/where to refinance to get equity.

Obaba

 

[Aaron_C]

Obaba - depending on how your loans are structured you can get equity from your PPOR right now, or if the PPOR is tied with the duplex construction, then you'd have to wait until the duplex is finished before you can extract equity. As for how much, hard to say because need to know your incomes in more detail etc. You don't have to sell it to your husband there are other ways.

 

[Obaba]

There is no tied up with current PPOR and duplex we are building. I am assuming equity of PPOR become the deposit of new PPOR. Say if we can access $100,000 but repayment of $600,000 loan seems way too much with our income to hold for a several years till we have subdivision even we count on rental income after duplex is rented out. ( There might be an option of renting a room out to student though as new property has 5 bedroom)

So I am wondering there is any way to access equity in duplex. Or selling one unit is a better option?

Obama

 

[Aaron_C]

You can access equity in the duplex once it is finished, it will be impossible to do so while it is being built.

I don't know if you will qualify for a $600,000 loan but if you do you can extract equity from your current PPOR for whatever purpose you want.

 

[Obaba]

It might be silly question, does having more equity or cash for the deposit result in higher amount of loan to qualify?

Our duplex will be completed at end of the year if everything goes smoothly.

I remember Loan Offer at Heritage ask me if we want to borrow more than contract amount as we own the land outright. Should we have said yes?

Obaba

 

[Aaron_C]

It might be silly question, does having more equity or cash for the deposit result in higher amount of loan to qualify?

Not really sure what you mean by this?

 

[Obaba]

Sorry I realize now that accessing equity is still borrowing therefore we still have to repay, which means our ability to service ALL loans is count, not how much equity we have.

I though putting more deposit qualify higher amount of loan as repayment is calculated loan minus deposit but that only works with own cash deposit not borrowed money.

Am I thinking correctly?

 

[Aaron_C]

Banks work on the maximum loan amount requested, so cash deposits are irrelevant unless you are doing a purchase which affects your LVR.

 

[Rolf Latham]

Banks work on the maximum loan amount requested, so cash deposits are irrelevant unless you are doing a purchase which affects your LVR.

Having said that, a bunch of cash across some accounts can really boost credit score, because if lits your asset ratios, especially good for higher LVR loans.

Comversely, having cash around sometimes puts doubt into a manual assessors eyes, not many credit people understand that someone would willingly do the LMI thing, and so therefore they must be a higher risk borrower..........

ta

rolf

 

[Obaba]

So... How do I know what is our borrowing capacity just roughly? All 'how much can I borrow' calculator doesn't seem to go even nearer the amount of $6~700,000.

When I used some of the calculator for the duplex construction, most calculators came back with less than we need. But when we actually see the bank we had no problem with the required loan without using any of equity from ppor.

More I try to figure out what is possible I feel like going around circles.

Is it time to see a broker?

 

[Rolf Latham]

Is it time to see a broker?

or a banker

be mindful obviously that a banker can give you that lenders serviceability model, a good broker should be asking you what you want to do in 3 to 5 years time and build a model around that goal.

In many cases, that goal can only be achieved with the right structure and lenders used early in the piece, with other lender retained till later

t
rolf

 

[Obaba]

Thank you Rolf.

Will a broker assess our financial situation and give advice for possible structural change to suit us without actually applying for a loan at the same time?

Obama

 

[Rolf Latham]

Thank you Rolf.

Will a broker assess our financial situation and give advice for possible structural change to suit us without actually applying for a loan at the same time?

Obama

we do,in combination with your accountant, but we do protect our IP with a no go fee in some instances

ta

rolf

 

[Aaron_C]

Will a broker assess our financial situation and give advice for possible structural change to suit us without actually applying for a loan at the same time?

Yes that is the whole point of a broker. They will be able to tell you how much you can/can't afford without applying to any lender to do so.