FHB questions: buying a property with cash, and <$100k mortgage

[alexz1011]

Hi, first time poster here and still a newbie. Please excuse the silly questions I have.

I am looking to buy my first property before the FHOG expires on 30 June. I have targeted a few properties with purchase price around $440k - $500. As I am not financially very stable yet (just started working), my dad wants to help me out by giving me $370k cash. The rest of the purchase price, $70k - $130k, will then be financed through a mortgage. It is also not impossible that my dad could pay for me the total amount of the purchase price, which means I will then not need a mortgage at all.

My questions are:
- What are the implications if I purchase a property with cash without a mortgage? Is it bad or good? I read somewhere that it has tax implications, but I do not quite understand it and do not know how to relate that in my case. FYI, I am currently working with salary of $45k pa (just started on January).
- If I pay the property with cash and not a mortgage. How do I claim the FHOG? Is this something I have to do myself?
- Is it normal for people to borrow less than $100k for a mortgage? I guess so. Silly me. It is just that I had always heard people borrowing a much larger amount of money (> $200k).
- Assuming I am to borrow $70k - $130k, does anyone have any recommendation on a home loan product out there that suits my situation? I do not need a package product maybe as I am trying to avoid the annual fees. But I am also looking to pay off the mortgage as soon as possible. So I will probably arrange the term of the loan to be shortish (maybe 4-5 years). Anyone has any recommendations? I will probably need to talk to a broker, but I am just trying to gain as much information as I can at this stage.

Any replies appreciated. Thanks!

EDIT:
* It has now been confirmed that my dad will only pay $360k for me. No more. So I will need a mortgage of around $100k.
* I have some savings of $40k under my name.
* I have just started work on January, and my probationary period has just ended on 20th March.

 

[Bradsdad]

G'day there.

If you are relying on your fathers contribution as the sole contribution the amount of lenders available will diminish. This is because most now require between 3-5% genuine savings.
I note that you just started work in January. You would need to wait until your probationery period (if there is one) expires before seeking formal approval on finance.

The FHOG can be lodged by yourself through the SRO if you don't require finance. the process guidlines are available on the SRO website/FHOG application guide. I can email you a copy if it's easier.

In regards to tax implications, if you don't borrow any funds and the property remains a PPOR then no implications. If you turn iinto an IP at a later date then you would have no interest costs available to deduct. How this affects you would be determined by your own personal situation at that point in time.

I hope this helps a little.

Oh and as for products, I haven't missed this part but until your FULL circumstances and long terms goals are known it would be inappropriate for any recommendations to be given.


Regards
Steve

 

[Qlds007]

Same answer as per property investing.com

 

[alexz1011]

Thanks for the replies! Just some further update.

I forgot to mention that I do have some savings of around $40k under my name. I earned some of these through working various part-time jobs, and the rest (again) came from my dad two years ago. Also, my probationary period has just ended

Also, (what a coincidence) my dad has just called me as well to revise the amount of money he could give me. That is now restricted to exactly $360k. No more. He needed the rest of the money for his business. So I will need a mortgage of around $100k.

As for my goals, I want to pay off the mortgage as soon as possible. I want to avoid paying any annual fees on the mortgage. I want to use the property as PPOR initially for a couple of years. Once, I paid off the mortgage, and I have enough savings, I want to buy another property for an investment. Are these clear enough for you guys to recommend a home loan product for me? Sorry, they all might sound too naive, but that is all I could think of right now.

Thanks.

 

[Bradsdad]

Guess the product will come down to whether you require an off-set account or not. there are quite a few basic products out there with no ongoing fees but the majority have no off-set facility.
Will the gift from your father be repayable?


Regards
Steve

 

[alexz1011]

Guess the product will come down to whether you require an off-set account or not. there are quite a few basic products out there with no ongoing fees but the majority have no off-set facility.
Will the gift from your father be repayable?


Regards
Steve

By repayable, you mean, I have to repay it later on? Hmmm, no, not necessarily. Although, if I have the capability, I would certainly try to repay it later on. I think I would prefer having an offset account.

The problem is based on my own research, I could not find any basic home loan product that offers a free offset account.

Anyone aware of basic home loan products with offset account and have no ongoing fees?

Is it actually ethical to negotiate with the home loan managers from banks regarding having something like this? I am interested with the CBA's 3 year special economizer home loan product, but it does not have offset account.

Thanks.

 

[Bradsdad]

By repayable, you mean, I have to repay it later on? Hmmm, no, not necessarily. Although, if I have the capability, I would certainly try to repay it later on. I think I would prefer having an offset account.

The problem is based on my own research, I could not find any basic home loan product that offers a free offset account.

Anyone aware of basic home loan products with offset account and have no ongoing fees?

Is it actually ethical to negotiate with the home loan managers from banks regarding having something like this? I am interested with the CBA's 3 year special economizer home loan product, but it does not have offset account.

Thanks.

Yes there is a products that does have a full 100% offset account.

Either the product does have an offset account or it doesn't. No matter how much you negotiate this won't change.

If you haven't managed to find the FHOG stuff I mentioned in my 1st post you can PM me your email address and I can forward the documents on PDF format.

Regards
Steve

 

[Sunfish]

Alex, Your father should check with his accountant about the best way to do this but you should simply appreciate your good fortune.

To do the right thing by your Dad you should take out a simple P&I loan with no redraw. Appreciate that he is one in a million and give yourself time to grow into this apparent wealth. I say "apparent" because it could turn to dust if you try too much too soon.

 

[nonrecourse]

Charity starts at home

As the saying goes be kind and generous to your children as it is they who will choose your nursing home

If your buying your first home for $450,000 with a $100,000 mortgage and your putting in $40,000, even if propery drops 50% in the short term, your home and hosed no worries.

Regards NR

 

[Nommy]

borrow the maximum you can based on your income against the property.
Seek an Interest Only loan for say 5 - 10 years, take a loan with 100% offset option.
Put all the funds available in offset as whilst this is a PPOR you will reduce your interest charges. Save all your money in this offset account to position yourself for your next purchase in a couple yrs time.
After a few years when you upgrade and by another property which will be your PPOR, you can take the funds out from the offset account and transfer this to the new property.
This is a good way of structuring it as the tax man will not have an issue with it as you have not paid anything off the loan. So what you use from the offset account and for what purpose is completely up to you.
You might even want to replay this scenario with the new property. But this will be dependent on your borrowing capacity at the time.

The first property will now be a fully tax deductable IP and workable in the current tax system.

Talk to your father about this scenario and make sure he is happy for you to do this considering he is gifting you the bulk of the money.

Its what you do now which will reap you the benefits in the future. Don't just think now, think into the future.

 

[josko]

Alex, Your father should check with his accountant about the best way to do this but you should simply appreciate your good fortune.

To do the right thing by your Dad you should take out a simple P&I loan with no redraw. Appreciate that he is one in a million and give yourself time to grow into this apparent wealth. I say "apparent" because it could turn to dust if you try too much too soon.

Welcome alexz, you are certainly very fortunate to receive such a great gift. If you don't understand anything, don't be afraid to ask.

Take on board what Bradsdad says and the above is great advice.

Nommy your post is great advice. I hope alexz understands it, as all of this jargon can be a bit overwhelming when you are new to property.

The reason you want to take out a mortgage is to Negatively Gear and reduce the amount of Tax you have to pay. As above: speak to an accountant or flick through this forum and you will find loads of threads on NG.

As to the loan product, I am sure bradsdad can help you out there but as mentioned, more details are needed.

Good luck with it all.

Regards Jo

 

[Nommy]

there are alot of loans out there.
- Just make sure that the offset account is 100% offset against the balance of your home loan. Not one that 100% offsets only if you hold a certain amount in the account.
- Lenders still do IO loans for owner occupied loans.
- If you are planning on using this property as an IP in the future I personally wouldnt use the redraw facility. When you pull the funds out of the loan to make your next purchase and if you get audited, you will have to prove these funds have gone into an investment which is income producing. If you can't you will not be able to fully claim the amount that you have pulled out of the home loan as a tax deduction.

 

[Rolf Latham]

Nommy's advice is good and I detect some good PS146 training and common sense there.

2 products to specifically avoid are Heritage Building Society offset and ST George Bank.

Both these products (at last check) were ""interest based"on PPORs and therefore not suitable to the tax protection structure that Nommy has nominated.

Interest based means that savings from the offset account reduce the principal, rather than reduce the actual repaymenteach month

ta
rolf

 

[RumpledElf]

The fees per month are hard to avoid. One of my loans is under $30k but we pay $8 a month in fees (CBA), which pushes the effective interest rate for the loan up something severe. That bank was the only one who would give us a loan so its not like there were options. I'm hoping to put the house on the market next month but it is securing the other house so I can see some issues there straight away.

BTW lots of banks don't like giving away less than about $80k. That was one of our issues, among many. Fortunately (and I use that word loosely) all the fees and mortgage insurance (we were just over 60% lend so had to pay LMI) took us over $80k in total for the houses.

Add zeros to the ends of all those numbers if you want to make it more relevant to, say, Sydney