DSR problem

From: Gail H


Hi everyone,
Okay, I've applied to have my home refinanced so I can draw down deposits. But now I will have a $240,000 loan against a property worth $300,000 instead of the original $160,000 loan. Well, as soon as I tell a lender I "owe" $240,000 on the house (since you have to put down the whole line of credit, even if its not all drawn down), I'm told that I can't "afford" to borrow more. What is the way around this problem that the whole line of credit must be put down as a liability, and not just the drawn down portion. I intend to by properties that are all positively or neutrally geared, but it doesn't seem to make any difference.

Gail
 
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Reply: 1
From: Duncan M


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They should be taking some percentage of the anticipated rent on the new
property into account when calculating your DSR.

You need to make the effort to fully understand the model that your lender
is using to calculate DSR, dont just let them tell you that your DSR is too
high, ask them to guide you thru the calculations. There are many many
different ways of calculating DSR, some have the most archaic methods,
others have much more mature models. Shop around, ask the lenders how they
calculate it and determine which will give you the most capacity to borrow.

Duncan.

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<TITLE>RE: DSR problem</TITLE>



They should be taking some percentage of the =anticipated rent on the new property into account when calculating your =DSR.

You need to make the effort to fully understand the =model that your lender is using to calculate DSR, dont just let them =tell you that your DSR is too high, ask them to guide you thru the =calculations. There are many many different ways of calculating DSR, =some have the most archaic methods, others have much more mature =models. Shop around, ask the lenders how they calculate it and =determine which will give you the most capacity to borrow.

Duncan.




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Reply: 1.1
From: Steve Navra


Hi Gail,

This is probably the most common problem facing borrowers: You can convert this equity value into income. Purchasing an 'income' bond (Cashbond) will easily solve the serviceability problem.

Refer to the archives - 'Investment Structure' or e-mail me direct and I will gladly send you the details.

Regards,

Steve
 
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Reply: 1.1.1
From: Frank Shead


Gail,
It would appear that its a matter of LVR, 80% of $300,000 = $240,000. Your facility may not want you over 80%. They would have to apply for Mortgage insurance. Your loan may not allow that.You do not indicate an income either your own or has been mentioned all your rental properties.

Look for a lender that allows you to be a $1 ahead in terms of can you afford it. I.E cash earnt against cash spent.
Frank Shead
 
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Reply: 2
From: Rolf Latham


Hi Gail

The rental income will make a BIG difference.
Using the right lender, a 13 to 14 % rental income will make a 100 % borrowing cashflow neutral with most lenders models.

An annuity as suggested by Steve N, will help a lot, especially where someone has not been in a business for long,providing you have the equity ot support it and the deposits + costs.

Ta

Rolf
 
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Reply: 2.1
From: Rixter ®


Hi Gail,

Why don't you just use the equity in your own home as "Security" for a deposit on future IP.

This way your existing home loan does not need to be touched at all, and when it comes time to buy the Ip borrowing 100% of the purchase price or 106% if you didnt want to inject any of your own capital to acquire the deal.

Then as your Ip increases in value the security you used as the deposit against your own home drops away and the Ip becomes self supporting.

Happy Investing,
Rixter :)
 
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Reply: 2.1.1
From: Gail H


If I understand you right I would add another mortgage for each IP deposit I wanted to raise. If I wanted to raise deposits for 5 properties, then I would have six loans against my home - my principal home loan and the loan for each IP. Each IP would then be cross collateralised against 2 properties - my home and the IP. However, the lenders I spoke to wouldn't even consider being 2nd mortgagee, let alone third or fourth. I just can't see how that would work if you want to use your home to raise deposits on multiple IPs.

Perhaps I've missed something.

Gail
 
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Reply: 2.1.1.1
From: Les .



G'day Gail H,

I suspect this is a DSR problem. There a few reasons why I think this:-

1. The title of the post (how clever of me ;^)

2. Assuming a P&I loan on your own home, with current Interest Rates low, you are paying around 30% more on P&I than Int. Only.
- and you've just added another 50% to the total !!!

3. Using a "cautious-type Bank" DSR requirements, you would probably need to have a current income above $60k JUST TO GET THE HOME LOAN extension. And now, you want to borrow MORE for an IP?

4. Using "quick maths" you'd need an IP generating 9 - 10% JUST to allow for their 80% rule and still be in front....

5. And THEN, our "cautious-type Bank" wants to hit the Interest Rate with an extra 1.5 or 2% (their Qualifying Rate) to ensure you can STILL make payments if Interest Rates rise.

So, you'd better look for 12 - 13% return on ANY IP to cover this.....

Or, be earning WELL in excess of $60K per year....

Or, find a lender with a better DSR calculation (there ARE some out there that will lend at over 40% of your Income - subject to conditions).....

Or, take on Steve Navra's advice (the way I understand it, the Bonds return you 22%+ per annum, where an IP is typically 5% to 10%) ... But I haven't used this way myself yet, so can't add anything useful...

OR, grab a friendly Mortgage Broker to have them find you a way through this minefield. (You got your ears on Rolf, come on?)


But don't give up, Gail - there ARE ways around it. Jan had some great tips re preparing YOUR case to put in front of the Bank, showing that you KNOW what you're doing, you've allowed for the gains/losses and you're still in front, that you are FIXING I/O loans (so don't hit me with any Qualifying Rate BS), that your Income increases (and so do your Tax Benefits), etc.

Best of luck - keep posting, keep asking, and keep pushing - you'll win in the end,

Regards,


Les


- "Eschew Obfuscation" - ;^)
 
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Reply: 3
From: Gail H


Thanks Les (and everyone else_: that is tremendously helpful.

And yes, I've already got Rolf on the job - Rolf has been sent from the heavens above, I'm quite sure of it.

Gail
 
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