Borrowing money with no job but good income.

[DEC]

I know this has been asked but a search didn't find anything for me so I wonder if someone can advise before I raise a red flag at any banks by asking them.

Would I be able to borrow money to build a couple more small townhouses given the following .
The good bits.
I own the land for the townhouses outright.
I own several ip's outright.
I own my home outright.
I have no debt apart from some IP loans.
I get as much income now from rent as I did when I was working.

The bad bits
I do have debt on other ip's but the borrowings compared to last valuation are below 50% and the rent covers all outgoings.
I don't have a job .

I see 3 scenarios.
1) I could sell some IP's to self finance the new townhouses but will lose income by doing it.
2) I could forget about building and sell the land.
3) The bank will have no problem given income and equity.

I don't really want to do 1). I could live with 2). I would prefer 3).

 

[Peter_Tersteeg]

Obviously the equity part of the equation is fine.

The ability to borrow money is also dependent on income. It doesn't matter how much equity you've got, you need to show that you can afford to live (keep food on the table and the lights on), plus service existing and new debts.

Your rental income may be enough to do this, it depends on how much the existing and proposed rent and debts are. Start by working through your affordability calculations with a broker or lender.

 

[DEC]

Obviously the equity part of the equation is fine.

The ability to borrow money is also dependent on income. It doesn't matter how much equity you've got, you need to show that you can afford to live (keep food on the table and the lights on), plus service existing and new debts.

Start by working through your affordability calculations with a broker or lender

Thanks for the reply.

So a job is not important only the ability to repay because it was the no job part that had me worried?
My calculations @ 6.5% show that we could do it comfortably (only change being holiday at home that year) but we may need to use our redraw facility occasionally to top up new loan repayments during the build.
Once they are completed they should pay for themselves.

 

[tobe]

run the numbers, perhaps the discounted rental figures is enough to do the job.

Another alternative is a low doc loan, while you arent self employed in business per se, some lenders will 'low doc' property investment income.

If you keep the LVR below 60% it can be a fairly cost effective alternative.

 

[Mick C]

If you pass serviceability based on; standard living expenses etc +

1. Discounted rental income
2. Not taking in consideration any rental income from your new " build"

Than you be ok on a 70ish LVR; will have to stick with the big guys or at least the tier 2 for "no income" loan approvals.

also your age and "asset/debt" level will come into play. To be honest your best speak to a broker as they would have dealt with a similar scenario - ie no job or retiree who wants to borrow.

 

[Qlds007]

On a separate note i see the ATO is looking at forcing lenders to apply a serviceability margin of 3-4% over SVR rather than the traditional 1.5-2.25% in a way of reducing lending.

Not sure if it has legs but would certainly have an effect if it got up.

 

[Rolf Latham]

On a separate note i see the ATO is looking at forcing lenders to apply a serviceability margin of 3-4% over SVR rather than the traditional 1.5-2.25% in a way of reducing lending.

Not sure if it has legs but would certainly have an effect if it got up.

my little brain understanding is that the RBA is dreaming, since this is not their domain as an Independent.

They may be able to influence APRA, which of course can legislate for larger reserves and voila.

ta
rolf

 

[tobe]

And so what if this new serviceability rate is applied? the servieability rate is only one factor in how much a particular lender can lend. The reserve or APRA would have to police living expenses, income verification methods, etc etc, everything else that goes into the calculator.....

 

[Aaron_C]

my little brain understanding is that the RBA is dreaming, since this is not their domain as an Independent.

If the RBA is happy to lend me money at the cash rate I'll happily cop a 4% servicing margin.