Buying a PPOR without a deposit

[Special Forces]

Hi guys,

Thanks for the forum and your great help.

I have been reading the forum for a while and decided to join the investors league a long time ago.

My situation is not unique and I read about it hundreds of times. However I am just wondering is there an alternative approach to tackle it.

We want to buy our first PPOR. We would like to save a deposit to have the following advantages:
1) negotiate lower interest rate;
2) avoid paying insurance.

On the other hand we would like to buy asap (Melbourne). We did save some money but still need to save another half which would take approximately 1 - 1.5 years in our situation. My understanding is when rents go up sharply investors will immediately penetrate into the Melbourne's market. As a result the sum we will have saved will not be enough for buying.

Are there any smart ways of buying without a deposit and avoiding incurring insurance fees/negotiating lower rate?
I read somewhere if one manages to pay off 20% of the loan extremely quickly (to say in 1-2 years) lender can cancel insurance fees.
Or another way would be to find a property with a settlement date in half a year and proceed saving money.

Am I right here? Do you see any other ways to buy ASAP without a deposit but having the advantages?

 

[The Y-man]

Welcome SF.

You need a chat with one of the great brokers here on this forum.

Some observations:
1. I am not sure that your deposit has a lot of relevance to the interest rates you can obtain.
2. By "insurance" I assume you are talking of Lender Mortgage Insurance (LMI) ?

Cheers,

The Y-man

 

[Special Forces]

You need a chat with one of the great brokers here on this forum.

Thanks for your reply, Y-man. Will try to talk to some brokers.

1. I am not sure that your deposit has a lot of relevance to the interest rates you can obtain.

I am sure I read about such an opportunity on this forum... Maybe I misunderstood something.

2. By "insurance" I assume you are talking of Lender Mortgage Insurance (LMI) ?

Exactly, thanks for clarifying.

 

[hobo-jo]

I bought my first PPOR in September with my partner. We had saved around $20k combined and had the first home owners grant ($7k). We did a 95% loan. We could have tried to save the other 15% (around another $40k) to avoid LMI, but I imagine in the time it would have taken us to save that amount the prices would have jumped well above any costs of LMI (from memory around $3-4k in our instance for LMI) and our deposit would have had to have been biogger again. I say go for it, pay the LMI, in the longrun you will most likely be better off.

Where can you get better rates if you have a higher deposit? Most lenders do a discount on the variable rate if you borrow over a certain amount, but have never heard anything about discount due to having a higher deposit.

LMI can sometimes be refunded if there is no longer a need for it in the first 12months. In your situation you said you were looking at 1-2 years to get the 20%, so don't think there would be much chance of you receiving a refund on the LMI.

 

[NormH]

Special Forces hi,
I don't know if you own any investment properties yet but you could consider letting the tax man buy your PPOR ie

Say buy around September time frame, might then also get FHOG rent it out for 10mths (speak to the legal people about the FHOG) claim all the tax deduction for the 10mths and then move in in month 11 which is the new financial year, this gives you tax deductions for the high costs for the first year and if it is new then you will get more, the 1year is usually significantly higher than years 2 - 5 and then a lot less for the balance of the 40 years.

just a thought

Norman

 

[Special Forces]

Special Forces hi,
I don't know if you own any investment properties yet but you could consider letting the tax man buy your PPOR ie

We do not have any properties so far. Our main goal is to buy as soon as we can.

Say buy around September time frame, might then also get FHOG rent it out for 10mths (speak to the legal people about the FHOG) claim all the tax deduction for the 10mths and then move in in month 11 which is the new financial year, this gives you tax deductions for the high costs for the first year and if it is new then you will get more, the 1year is usually significantly higher than years 2 - 5 and then a lot less for the balance of the 40 years.

just a thought

Norman

Have you or anybody else tried this method? Can this really work out?

Thanks.

 

[NormH]

Yes I have done it but the FHOG was not available way back then so we just bought and rented it for about 14 mths and then moved in. The house was built new so a lot of deductions were available for that first financial year. For a book keeping perspective you would need to "have the property reasonably valued to assist the Capital Gains Tax at a later date if you were to sell but my policy is don't ever sell, hence I am a property investor by mistake

In reality you could use the purchase price for the CGT as with new houses there is a builders profit and as a result they are usually a bit more than what the market would be anyway.

I am sure many other people on this forum do the same thing, it may/maynot have been a deliberate strategy but buying your own home is difficult as you have no tax deductions and the upfront costs are quite high and there at times in the property cycle where it is better to live in rent and purchase investment, as there are other times in the cycle where you are better off in your own place and not renting when the rents get up to the 8%.

That is my experience and opinions only, check with others

Norman

 

[geoffw]

Say buy around September time frame, might then also get FHOG rent it out for 10mths (speak to the legal people about the FHOG) claim all the tax deduction for the 10mths and then move in in month 11 which is the new financial year, this gives you tax deductions for the high costs for the first year

A pity you are not in Canberra- this can work even better there. Because all land is leasehold, somebody buying a property for investment can claim all the stamp duty costs for a purchase in the year in which the expenditure took place.