Buy new PPOR, convert old PPOR to IP. Financing questions

Hi there

I have read this forum for some time now and have enjoyed gaining plenty of knowledge from posters. With a growing family, among other options my wife and I have a scenario to ponder and would appreciate some input.
We currently own a 2 bedroom PPOR in Niddrie, and there are a couple of 3+ bed houses in closeby suburbs that we are interested in as a new PPOR, and we would then convert our old PPOR into IP #1:D. I have crunched some numbers and would like some feedback.

My current income - $88k (ongoing position, state government)
My wife is currently on mat leave returning to an ongoing teacher job in Nov 2011 @ 1 day per week, and minimum of 2.5 days next year. Her salary level is $68k so income would be equivalent to $14k @ 1 day per week, $34k @ 2.5 days per week next year.
Current Niddrie PPOR: Est. value - $450k, NAB mortgage 50/50 split title - $285k, Est. rent value $400 p.w
Est. max purchase price for new PPOR - $550k
Offset savings - $35k
Credit card limit - $10k (could reduce to $5k), balance is cleared each month.
No other debts.

I have looked at using $75k of equity (up to 80% total LVR) in current PPOR to purchase the new PPOR, + the $35k cash. After transaction costs, this would leave approx. $465k mortgage on new PPOR with some LMI to pay (or I may be able to get some extra cash to end up under 80% LVR). This would then leave $360k on the old PPOR which would become our 1st IP. (But only $285k deductible as I understand it.)

Question 1 - Can my wife’s income be counted even though she is on mat leave? She will be back at work before any settlement date arises. I struggle to see how we could secure finance without her income being counted?

Question 2 – Would be get finance for this arrangement?

By my calcs on our expenses cashflow, with 1+ days income from my wife we can service the PPOR loan and cover IP negative cashflow (est $300 per f/n inc all costs), but it will be tight up to $2k per fortnight combined. With my wife working 2.5+ days from next year we can do it ok and afford potential IR impacts.

I have noted the work of helpful brokers on here and would look to select one to assist with this or other purchases. I am aware of IP loan structure issues and so on, but at this point I am curious if I am on the right track with these numbers and whether I should allow my wife to get interested in the idea. Any other questions or comments would be appreciated.

Regards, TazDevil
 
Hi TD

Welcome

A quick q before delving into options.

Have you done your personal affordability sums? Right now, assume Mrs back at work, how much a week would u have available ?

ta
rolf
 
Hi TazDevil,

Just a quick question - how much are you expecting to pay for this new PPOR? It affects how much you are able to borrow.

Aaron
 
Hi Rolf

Thanks for the welcome.

We currently allocate $1,600 to our mortgage and savings a fortnight. I have been 'paying' back previously saved mat leave from an online saver account at the equivalent of my wife working 1 day a week.

In addition we have discretionary expenses we can easily reduce (Dining out, I buy nice single malts, wife shops online at Ralph Lauren a lot:rolleyes:) and we can lower some other costs such as all our 'top' insurance covers quite easily.

So in summary, I think we can have up to $1k a week available until Feb when my wife starts earning a fair bit more, but this means we would be squeezing our expenses a fair bit.

The auctions for the properties are in October so once settled it would be a few months at this level of income/expenditure.

From Feb 2012 with my wife earning $600+ a week, we could allocate $1,000 - $1,100 a week easily, more at a squeeze. Both my wife and I have small pay increases that should be coming up at end of year that I have not factored in, and she can earn a bit more by working at her brothers' businesses doing admin work, or teaching extra days up to her full $68k p.a. We have free childcare at the retired in-laws if absolutely necessary, my wife's mum is encouraging her to go back full time so she can spend all day with her granddaughter!
 
Aaron, I would expect to pay up to $550k.

Advertised range is $510-$560k and I feel that the higher end of this range is about right for this property. The agent selling this one seems to be pretty realistic in their advertised prices/reserves more recently from what I have observed around here.

But with the current state of local auctions , I would be hopeful of getting it a bit lower after the vendor doesn't get any interest at auction :D
 
Okay that makes sense. If your wife is returning to work soon she needs a letter from the employer stating how much she's going to earn in her position. But given her income of $14,000 pa it's going to be difficult for the following reason:

Your combined income won't service a loan that would allow you to release the 20% equity in your current PPOR, and borrow the rest to pay for the new PPOR. You would need to put more cash into the PPOR - but on your sums you won't have enough cash to pay for the new PPOR because you have to pay for stamp duty etc, and that's even if you cross collateralise (which is not advisable if you can avoid it). It just seems a bit too tight at this stage - I suggest you save up until your wife goes back to work for 2.5 days per week.
 
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