Confused about how much we can borrow

Hi all

I am really confused about how much we can borrow. Westminster wrote in another thread where a guy has $180K deposit and a good job ...

Let say 180k would get you 1.8m if you could get a 90% lend - no guarantees on that - you'd need to speak to a broker.

In other threads people have said in our situation we can borrow 2million.

BUT our mortgage broker says we can borrow up to $658K

Our financials are:

No deposit (will draw this out of PPoR mortgage)
PPoR bank value will come in around $800-850K (for sale appraisal is $900+ by a local real estate
mortgage $325K
=equity of $475K (if bank val is $800K)

Income: $194K year
Mortgage payments around $2000 month P and I

We have around $3000 disposable income per month, but I would prefer to be conservative and say we have $2000 month as things always crop up.

I also earn $3-5K month, but don't want that factored into the loan, that is our buffer.

So what can we borrow - $658K is a long way off from the 2million others have said we could borrow (this was based on equity of $500K)

Scratching my head here, what have I missed?
 
Probably missed selecting a better MB? :D
May be the rental income of the purchases were not included in the calculations.
 
Aside from what a lender may throw at you, based on the disclosure above, have you done your personal budget as to whats available to Personally service a new loan after you exclude your income etc, by that I mean your personal budget ?

Borrow cap is one thing, sometimes paying the thing is another.

ta
rolf
 
Before you get carried away on how much you can borrow on your income, you need to consider that the stamp duties and other charges need to come out of your $180k. If you assume this comes to 5% of your purchase price, it gives you the capacity to borrow up to about $1.2M at 90% LVR.

Given that you've got more equity in your PPOR, you can likely go further than that, so your limitation is going to be based on your affordability.

Given the way you've presented your financial information, the best you'll get is a conservative estimate of affordability that's based on a number of assumptions. For example, stating your total salary gets you in the ballpark but it's not accurate because two individual salaries will yield different net incomes depending on how much each salary is.

Additional info that needs to be understood is who many children or dependants are there? Are there any other debts, what about credit cards?


Rule of Thumb Borrowing Capacity
If you believe you've comfortably got a disposable income of about $2,000 per month, then a simply rule of thumb would suggest that your affordability is about $700,000.

You simply double the disposable income to incorporate rent. This would assume you get $2,000/mth rental income after expenses, so total income to put into a mortgage is $4,000/mth, or $48,000 annually.

Assume 7% interest rates and $48,000 would allow you to service loans of $685,000. Given there's a lot of assumptions in this, the 'comfortable' purchase price is somewhere between $650,000 - $700,000.



This figure assumes you'll get a fairly average rental yield. It doesn't reflect any lender's policy in any way at all and gives no real thought to actual circumstances or needs. If you want to see the real figures over a range of lenders you need to discuss your specific financial with a mortgage broker who understands investors.

The real figure based on the info so far is likely to be significantly higher. This method does get you into the ball park of a figure that's unlikely to have a significant impact on your current lifestyle however.

Realistically $700,000 is a reasonable amount of money. Certainly the borrow capacity will be higher, but you could simply purchase some property worth up to $700k given this will be fairly comfortable for you, review how this effects your lifestyle and then make further decisions from there.
 
In other threads people have said in our situation we can borrow 2million.

BUT our mortgage broker says we can borrow up to $658K

Our financials are:

No deposit (will draw this out of PPoR mortgage)
PPoR bank value will come in around $800-850K (for sale appraisal is $900+ by a local real estate
mortgage $325K
=equity of $475K (if bank val is $800K)

Income: $194K year
Mortgage payments around $2000 month P and I

We have around $3000 disposable income per month, but I would prefer to be conservative and say we have $2000 month as things always crop up.

I also earn $3-5K month, but don't want that factored into the loan, that is our buffer.

So what can we borrow - $658K is a long way off from the 2million others have said we could borrow (this was based on equity of $500K)

Scratching my head here, what have I missed?

ummm your not giving raw data....very hard to determine how much you can borrow- so i have a feeling the reason for the $650,000- $2m diff in borrowing was due to how the data/details was presented to the broker/bank and how the bank or broker analysed the data..

Personally i always ask for raw data and not to "bundle everything up" because there are certain income that can't be bundled together.

Reading your post, im still not 100% sure what your gross and net income is per year/month? how many borrowers ? how much of the 197,000 is rent, other soucrse of income and how much is salary? and who's salary etcc? Not sure how much you have in redraw ...as redraw = borrowed funds = less serviceability ( not cash)

You might ask, why does this all matter?? why can't i just give one "figure" of my total taxable income for the year ( ie the 197,000)...a few reasons

1. Rent is calculated differently and taxed differently compared to your salary. ie the bank will only take in 80% of the GROSS rent....VS 100% of your net salary

2. Not all rent are calculated at 80%...ie Residential rental = 70-80% depending on lender. Service apartment - 60-70% , Commercial - 60-100% , NRAS - 60%

3. Some banks have restriction on how much rent they can accept as well...

4. Gross Income is taxed according to your tax "individual " tax bracket

5. Redraw is considered as a loan

6. Is the new property IP or PPOR?

7. ANy kids

8. Type of job and salary type

9. Loan type ( fixed or variable/ P/I or i/O)

10. Who the lender is

the list of variables goes on...

Cheers
 
Thanks guys, I think i now what I did. I was very conservative with my figures.

I overestimated our living expenses, and underestimated things like rental potential. I wanted to make sure I had buffer upon buffer upon buffer - just incase.

Essentially our nett income is $11,500 (sometimes more as hubby does overtime) per month.

$1800 month mortgage payment P and I
$1400 month chill support payment
$3000 month groceries and household items, petrol, occasional taxi etc
$250 month health insurance
$80 month home and content insurance
$400 month utilities
$170 council rates and water
$130 month World Vision child sponsorship
$600 month day care 2 toddlers
$125 month internet and home phone (no mobiles)

$7,955 - say $8000

so $3500 month disposable income, plus my business income $3-5K month gross - but I didn't use that in the calculation as this is buffer number one.

Buffer number 2 is an interest free loan and pay back whenever from the "mummy bank"

Buffer number 3 is ditching $600 month child care and $130 month World Vision

Also worked the loan on bank valuation of $800K - very conservative, probably come in at $850K as last valuation 2 years ago when house wasn't even close to finished was $750K

Thanks for your answers, learning learning learning!
 
It's great that you've got a good understanding of your budget and where your money goes. It's very important that you understand the figures involved in any financial commitment (such as a mortgage for an IP) and that you are confident that can afford that commitment.

However, almost none of the information in the previous post is likely to be used in the analysis of how much a lender is willing to provide - perhaps with the exception of the monthly mortgage and the child support payments.

If you used the figures you've provided in a lenders financial analysis, they'd hardly lend a cent. If you go by the lenders actual methodology, they'd ignore all of this and come up with a figure you likely can't actually afford.

Best to understand what you're trying to achieve and your own budget to achieving that result. Then have a specific discussion with a broker to determine which lenders can meet those expectations - but keeping your figures in mind.
 
Hah, maybe I shouldn't be so honest then. At the end of the day we have to be able to afford it and still be able to live a little.

The problem here is both the bank and you are putting various buffers in place. Just know what you can afford and then tell the bank what your minimum living costs are and what your other fixed costs are don't add in your own buffers as they are already doing that (mostly).

The other thing I see a bit are things like....the bank asking what your child care costs are and borrowers quote the full amount when they should be netting off any rebates they get (as the lender won't consider the rebate as income!) get it??
 
The bank will factor in your full credit card liabilities (max card limit as additional loans)

Your servicability will be impacted if the loans are in 2 names - I'm not sure if you mentioned if the loan was going to be in 2 names. If the loan is only in 1 name then any income from your partner won't be taken into account

Your servicability will improve if you apply for a loan fixed for at least 3 years - the current fixed rate applied to the calculations - 2% is usually added if the loan is variable
 
Hah, maybe I shouldn't be so honest then. At the end of the day we have to be able to afford it and still be able to live a little.

Well that's really it although I find that people tend to change their lifestyle once they have a bit of debt to wake them up each day.
 
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