Can I get a loan? (Attention brokers)

[MishMash]

It has been almost a year since I bought my IP and i would really like to buy another one this year (ideally a house, under $250,000). My problem is that i have no saved money for a deposit or costs (have been paying off an operation). Can any brokers let me know their thoughts on whether I could get a loan and is there any way I can buy a house with zero cash (am i dreaming?)

My financials:

* 1 investment property - purchased for $249,000 in March 06 - have a mortgage of $225,000 (repayment of $365 per week). Currently rented for $245 per week.

*Salary of $59,169: $865 net + extra $100 per week due to my salary packaging arrangements = $965 net per week. I am in a new job and will pass my 3 month probation period on 8 April.

*1 credit card of $1000 (no balance)

*Superannuation of ~$8,500, vehicle $9,000 & household effects of $10,000 (if any of this is taken into account)

*No dependents

If I buy a 3 bedroom house, expected rent would be at least $230 per week.

Any thoughts welcome.

 

[Qlds007]

Hi Mish

100% loan for an IP is readily available however you will need funds to cover your costs on acquisition.

Many lenders will want to mortgage insure the loan and this will need to be deducted from the loan funds as well stamp duty, solicitors costs etc. Other than a private personal loan for these i cannot see how you can settle.

 

[davea]

Hi Mish

100% loan for an IP is readily available however you will need funds to cover your costs on acquisition.

[\QUOTE]

would this be at a higher interest rate, or at something similar to standard rate...

i know LMI would be charged,but id imagine for the risk of 100% they would want higher interest costs, correct, any idea of a rough estimate of the interest rate compared to a normal say 90% and 80% LVR IP loan

 

[Qlds007]

Hi Dave

Standard interest rates are charged around 7.5 - 8.1% depedning on the lender.

LMI is deducted from the loan but as long as you are a clean skin and good asset position and serviceability then it is not too much of a problem.

 

[davea]

so its only a small increase on standard rates...

is deducted from the loan? does that mean you apply for 300k, LMI is 10k,you only recieve a loan for 290k, and you need your own 10k to put in to make it back up to 100% (plus other costs)

would it be worth the extra LMI from say 95% to the 100% (im sure it sky rockets in that 5%) or if your in a better asset position LMI takes that into account...

what im really trying to get at is if your in a good asset position, wouldnt it be better to refiance your current loan (it available) and get some form of deposit fromt that instead of going the 100%???

cheers

 

[Qlds007]

Dave

I couldnt agree more.

Yes 100% IP loans serve a purpose but sometimes the increased costs outweigh the proported savings.

The way we set most of our clients is that we look to structure their existing loan in a manner that they can access deposits and acquisition costs from their own PPOR and then they have each loan on the IP as a stand alone deal.

These can 95% with the LMI capitalised if they are happy to go that route or alternatively 80% if they dont want to pay LMI. As it is a tax deductible expense most clients accept it as a cost of investing and we account for it in the borrowings.

 

[davea]

Dave

The way we set most of our clients is that we look to structure their existing loan in a manner that they can access deposits and acquisition costs from their own PPOR and then they have each loan on the IP as a stand alone deal.
.

these being revalued as years go on and accessing the capital in them which could be then used for more deposits correct???

These can 95% with the LMI capitalised if they are happy to go that route or alternatively 80% if they dont want to pay LMI. As it is a tax deductible expense most clients accept it as a cost of investing and we account for it in the borrowings.

would you suggest that teh 95% option is the better way rather than laying out 80%, as it ties up less capital in deposits which allows you to purchase more properties if you so desire and then if you refiance again to 95% you only have to pay the difference, not the whole amount?? Is this the way you do it richard, or do you have enough equity to just put down 20% on everything? In the overall investing, would a 90% LVR be beter as i know there is a massive increase in between 90-95% LMI, or same principal, the extra payment is worth the sacrofice to access the extra 5% capital..

also sorry one final thing, when you say its capitalised, does that mean its 95%LVR + LMI, would this distort the LVR ratio or that banks are happy to do this...

sorry for the hijack again but i guess these answers could help everyone...

 

[Qlds007]

Hi Dave

Personally i only have 80% LVR on all of our properties but we were lucky we owned outright a nice house, a commercial property and a few others when we started 10 years ago.

Not everyone is so fortunate so i think you need to work the situation depending on your circumstances.

As an example LMI goes up in scales not only depending on the LVR but also on the loan exposure to each lender for example 0-300K / 300-500K and 500K and over. Hence we try and map out a clear path for out clients to enable to not only to save on LMI by shopping around lenders but to ensure that they don't get to a position where they can't move ahead because they have run out of deposits.

The difference in premium between 90 - 95% is relatively small considering that you may have to find another 5% of the purchase price.

Yes a lot of lenders allow the LMI to be added to the loan and Yes whilst you end up paying interest on the LMI premium it frees up more capital. As mentioned before it is a tax deductible expense over 5 years or the life of the loan whichever is shorter (proportionalised for the first year depending on the number of days to go until 20 June) so it isnt as bad as first seems.

 

[davea]

As an example LMI goes up in scales not only depending on the LVR but also on the loan exposure to each lender for example 0-300K / 300-500K and 500K and over. Hence we try and map out a clear path for out clients to enable to not only to save on LMI by shopping around lenders but to ensure that they don't get to a position where they can't move ahead because they have run out of deposits.
.

is this a big enough difference to worry about? how does the sliding scale work, is it a % way how it is caclulated? Like a general rule?

The difference in premium between 90 - 95% is relatively small considering that you may have to find another 5% of the purchase price.

Yes a lot of lenders allow the LMI to be added to the loan and Yes whilst you end up paying interest on the LMI premium it frees up more capital. As mentioned before it is a tax deductible expense over 5 years or the life of the loan whichever is shorter (proportionalised for the first year depending on the number of days to go until 20 June) so it isnt as bad as first seems.

so you would be able to deduct the actual expense, however would you also be able to deduct the interest expense on the LMI as well?? would you be allowed a deduction for only the years your depreciating it, or until you have paid it back? is this the same principal built into all other costs when capatlised?

 

[davea]

the thing that hasnt been addressed here is the interest charges in relation to the super funds money

also I guess it all depends on the future growth prospects and how long you plan to keep the property.

If the property makes a 20% return in a 5 year period, at a interest rate of 7.5% you are only $500 worse off per year.

However if it makes a 50% profit in 5 years you are $12,500 worse off per year.

these are all pre tax calulations (someone on the top marginal rate would be be 23% better off in these figures with discount), you wont have to pay tax on the super portion i guess

However any year time frame, you are particularly making a gamble on 3.5% per year. As long as your property makes 4% or under (averaged) growth per year then you will come out marginally behind...

Am very interested in how the company would take the refiancing of this loan, would this constitute a sale, or would they then chip in the amount to make it up to 20% again.

 

[Qlds007]

dave

the thing that hasnt been addressed here is the interest charges in relation to the super funds money

A) There is non charged and no repayment required.

these are all pre tax calulations (someone on the top marginal rate would be be 23% better off in these figures with discount), you wont have to pay tax on the super portion i guess

A) As the loan is for owner occupited properties only it makes no difference.

is this a big enough difference to worry about? how does the sliding scale work, is it a % way how it is caclulated? Like a general rule?

A)As an example 90% LVR 0-300K = 1.56% 300-500K = 1.69% 500K+= 2.44%
As an example 95% LVR 0-300K = 1.91% 300-500K = 2.6% 500K+= 3.36%

These are a % of the loan amount.

so you would be able to deduct the actual expense, however would you also be able to deduct the interest expense on the LMI as well?? would you be allowed a deduction for only the years your depreciating it, or until you have paid it back

A) Yes you can claim the deduction on the interest charged.

 

[davea]

dave

the thing that hasnt been addressed here is the interest charges in relation to the super funds money

A) There is non charged and no repayment required.

yes sorry richard, what i mean is interest that would of been paid if not for the scheme hasnt been addressed...

the super fund needs to re co the interest which is 'owed' to them before they make the profit, so the 40% profit the recieve needs to have the 'deemed interest' payments that would of been paid otherwise

 

[Qlds007]

Dave

Yes you are right.

Imagine buying a property that has neutral growth for 2 years and then you decide to refinance. Effectively you will have received an interest free loan on 20% of your purchase price.

 

[Peter_Tersteeg]

There are several lenders available quite happy to do 7.40% on a 100% LVR. Depending on the loan you want, you can get even better at the moment. The mortgage insurance is steep at 3% and you'll still have to fund the purchase costs.

Ongoing costs and set up fees are minimal. As a rule of thumb, for a 100% loan I suggest you have about 7-8% to cover costs and mortgage insurance.

If you're eligible for the First Home Owners Grant, you could potentially purchase the house as a PPOR initially, get the grant and stamp duty exemptions (in NSW), then rent it as an IP in six months. This would get you close (but not quite there) to not having to put any money down.

 

[davea]

Dave

Yes you are right.

Imagine buying a property that has neutral growth for 2 years and then you decide to refinance. Effectively you will have received an interest free loan on 20% of your purchase price.

so it is once you refinance then the super fund then there original loan is deemed expired? inm this case how would they work out the profit on the property? even a valuation could be more money than it would be sold for in an open market...

 

[Qlds007]

Dave

Funny clients usually tell me the contrary.

Valuers under value the true value of the security.

But yes once you decide to sell / refinance a valuation is undertaken so to ensure that you dont sell the property to you brother at under market value and the profit or loss is calculated accordingly.

 

[BV]

Dave

Valuers under value the true value of the security.

.

Richard, I noticed it too.
Do you know why they do this?
What purpose would it serve if the only security is the property
you are buying and you have the 20% deposit or paying LMI?
cheers

 

[alexlee]

Richard, I noticed it too.
Do you know why they do this?
What purpose would it serve if the only security is the property
you are buying and you have the 20% deposit or paying LMI?
cheers

CYA, no? Valuers have gotten a lot of flak about over-valuation during the boom years. Now people are saying the valuers were in collusion with the banks just to lend as much money as they could to people who now can't pay it back. Can't really fault a valuer for being conservative, especially if being too optimistic opens them to liability.
Alex

 

[BV]

CYA, no? .
Alex

Probably, thanks Alex