Doubts on financing IP purchase

[meghashu]

Hi,
I am going to purchase my first IP (with sub-division potential).
So, my plan is:
1. Get my current PPOR revalued and loan restructured to have investment/LOC component
2. Finance the purchase of IP
3. Finance construction loan in 6-18 months

I have some questions on financing side of it, if you experienced guys can help me on this, that shall be great.

1. Financially, I am able to revalue my PPOR, release equity in it to reach 80% LVR, setup an investment loan and fund new IP purchase. That way I can keep my new loan for IP within 80% LVR saving LMI.
But I have been suggested by a mortgage broker to borrow 95% on my new IP loan. I was given the reason that if/once I max out my borrowing power, I won't be able to increase my loan limit to 95% (for future purchases/construction) if I only borrow 80% now.
Is that broker's advice has any merit?

2. I may be maxing out my borrowing capacity in IP purchase itself and I would have borrowed 80% LVR on PPOR and IP both. Now, to finance construction, I might need to have 420K finance but based on expected rental income from new dwellings, I may be only be lent 320K more. Is there a way to cover the shortfall of 100K?

3. Instead of investment loan from my PPOR, to purchase IP, should I setup LOC?
With LOC I believe that my total loan on that property can only go upto 80% LVR. Is that correct?

4. How the LOC limit affects my borrowing capacity for other purchases? If my current borrowing power is 500K before taking out 100K LOC. Can I borrow upto 460K for IP purchase as investment loan, even if I only drawdown 40K from LOC.

Thanks in advance.

 

[Rolf Latham]

Hiya Meg

Welcome

In general your questions can be answered, however you are partially looking for very specific answers, thats hard when one doesnt know the FULL details behind the numbers.

1. Finance to the highest LVR often has merit BUT, goven that you will buildon this place, and you say you are missing servicing at the build level there appears to be no point in doing that.

Without knowing the details, on the surface it would be more logical to look at drawing as much as you can from the PPOR, thence doing an 80 % loan on the new IP..........

2. Id need the numbers as to why servicing is low. I come across too many borrowers where they still have plenty servicing available, when often its poor choice of lender, structure or timing thats causing the issues. A no or lo doc loan may be the last resort.


3. LOC with many lenders goes beyond 80 %.some to 95 %, smells like ANZ to me ?

4. LOC will affect servicing, because its assessed at limit for the next loan.

ta
rolf


3.

 

[meghashu]

Hi Rolf,
Thanks for very quick reply on my post.
You have answered most of my questions. Thanks for that.
Yes, you smelled it right. 80% LVR limit on LOC is from ANZ.
Now, I believe servicability wise, my position is quite certain. I have got it checked with 3 different MBs. Timing also should not be an issue. Regarding structuring I am not very clear. At the moment I only have PPOR with single P&I loan a/c.
In future I will certainly be avoiding x-collatorising. Could you give some examples what type of loan structuring could come in the way for future financing?
For build phase, having limited by servicability, if I want to go lo-doc or no-doc, could I increase my LMI from 80% to 90-95%?

Thanks,
meghashu

 

[Qlds007]

I think i understand you last question.

I assume you are asking could you increase your LVR from 80 - 90/95% by using a lodoc / nodoc style of loan.

Assuming you are self employed and are just not able to come up with you last few tax returns then lodoc is available at 95% albeit at a higher interest rate.

Nodoc is limited to 85% or 90% with a blended rate product.

 

[Rolf Latham]

Hiya Meg

Me again.....seems you could gain more knowledge with the servicing and options thing by speaking and sitting with a broker and talking your plans through with them.

In servicing a lot does depend on timing, structure and using what lender where and when, again many potential lo doc scenarios can be stretched to a full do, thence leaving the limited lo doc expsoures for later times.

ta
rolf