Finance Advice

[Polo Girl]

Hi everyone & thanks in advance for your help - I am a first time poster but have been keeping an eye on this forum for a while now and hopefully I can gain some advice!

I am looking at purchasing my first home, to rent out for a period of time and move into in a few years (am currently living at home still). My main problem is in finding a home loan. I am a casual worker (recently changed employers in a new industry) whilst in my final year of a masters degree - my current employer is related to my degree, however is different to previous employment and I currently earn $700 a week after tax and this is very likely to continue for at least 6months (until I graduate and can get a fulltime job I am qualified for!).

I am looking to purchase a property between $375-$390K and have a $25K deposit (not including FHOG) however I highly doubt a bank would lend me that amount of money. My parents are willing and happy to help out and a number of suggestions/theories have been made such as acting as security/servicing guarantors however with this size loan I am not convinced it is enough.

One other option would be if my parents and myself buy a percentage of the property each and once I am in a more bank friendly finance situation buying my parents share back from them (i.e. when I decide to move in so the property is no longer an IP but a PPOR). By my calculations and research I would be comfortable servicing a loan of $280,000 (70/30% split) between the interest rates of 6.5-9%.

Does anyone have any suggestions on other ways to go about this? I don’t want to rip my parents off and want to find a solution that minimizes risk as much as possible for both parties.

How do we go about splitting a loan?
When do we have to decide how the loan/finances will be split, at contract signing or settlement?
How would we then split the investment portions?
How easy is it to buy out the second percentage of the loan?
What impact does this have on capital gains tax and other taxes?
What exit strategies would be appropriate?
Any other questions that I have missed!

Sorry about the long-winded email – this is all starting to do my head in!

 

[Propertunity]

OK a few painful home truths.

You have $25K - good & well done. This needs to be a 20% deposit. Therefore you are looking to get a loan of $100K only on this basis alone.

Now looking at your serviceability. You want to buy a property for $375K-390K.
Lenders will estimate yor ability to repay at IRs 2% above where they are now. So say 9% for the calcs. If you borrow $350K @ 9% the repayments IO are $605pw. You earn $700pw. You can't afford to pay rates on the property let alone afford to eat & clothe yourself.

Short story, you can't afford to buy a $390K house under any circumstance at present. You don't earn enough and you don't have enough deposit saved.

Leave your mum & dad out of it. Most lenders would not go near this deal with them going guarantor. They won't want to appear on TT or ACA as they turf your parents out into the street and sell their home from under them.

Suggestion: Get a good paying job when you finish your studies. Start saving for a deposit. Think of starting with a lower priced property. Leave your parents out of it and stand on your own two feet.

You are to be congratulated for wanting to get ahead, but you're not ready just yet. Be patient and get established. You should do well. Cheers, Alan.

 

[Bigtone]

if you really want to do it now u will be able to now, any broker who knows what they r doing could get u the finance.

my suggestion would be to leave parents off title, much cleaner and cheaper going forward.

good luck

 

[csc2]

Bigtone...honestly that is not great advice....

The person obviously has good intentions but wont be able to service this loan, its that simple.

Forget pumping up dodgy brokers.....just look at this persons situation which has been clearly outlined..

Any broker who actually got this person a loan should be given a firm uppercut and be removed from the industry...even more so in the current market climate.

 

[meconium]

.....just look at this persons situation which has been clearly outlined..

She takes home $700pw while studying as well. A sterling effort if you ask me.
Hardly the sort of person who'd default.

CSC2, do I detect the slightest whiff of the anti-intellectual in you?

 

[csc2]

Gees! Fair dinkum...are you kidding?

Shes going ok but the thread is about a loan so i gave my opinion that she will struggle to service it on current form...taking into consideration: outlays inc rate rises, vacancy of the property, maintenance plus plus plus.

My post has no relevance about her personally or her education...its about the loan only..Im sure she is a smart cookie but she wanted opinions, i gave her mine....

Id be looking at a different opportunity...the loan value is too high for this person in the current market climate I feel...

Better opportunities elsewhere.

 

[bcoombs]

OK a few painful home truths.

You have $25K - good & well done. This needs to be a 20% deposit. Therefore you are looking to get a loan of $100K only on this basis alone.

Now looking at your serviceability. You want to buy a property for $375K-390K.
Lenders will estimate yor ability to repay at IRs 2% above where they are now. So say 9% for the calcs. If you borrow $350K @ 9% the repayments IO are $605pw. You earn $700pw. You can't afford to pay rates on the property let alone afford to eat & clothe yourself.

Short story, you can't afford to buy a $390K house under any circumstance at present. You don't earn enough and you don't have enough deposit saved.

Leave your mum & dad out of it. Most lenders would not go near this deal with them going guarantor. They won't want to appear on TT or ACA as they turf your parents out into the street and sell their home from under them.

Suggestion: Get a good paying job when you finish your studies. Start saving for a deposit. Think of starting with a lower priced property. Leave your parents out of it and stand on your own two feet.

You are to be congratulated for wanting to get ahead, but you're not ready just yet. Be patient and get established. You should do well. Cheers, Alan.

This is good advice and take note! Take care of your studies and save. Yes a broker that doesn't care about his clients may get you a loan. Previously in the Real Estate market its been better to jump in to the property market asap because of the high growth rates, but I doubt this will be the case. Study the market and bounce once it drops next year. Your main priority is your career change and studies.

Good Luck!

 

[bcoombs]

Gees! Fair dinkum...are you kidding?

Shes going ok but the thread is about a loan so i gave my opinion that she will struggle to service it on current form...taking into consideration: outlays inc rate rises, vacancy of the property, maintenance plus plus plus.

My post has no relevance about her personally or her education...its about the loan only..Im sure she is a smart cookie but she wanted opinions, i gave her mine....

Id be looking at a different opportunity...the loan value is too high for this person in the current market climate I feel...

Better opportunities elsewhere.

Sometimes people don't like the obvious !

 

[Polo Girl]

Thanks!

Thanks for your replies everyone! I also agree that I would be unable to service a loan of $350K - $400K on my wage. But I do feel that there must be some way to acheive this!

As I am living at home I spend very little money (I know many people say this but in my case I believe it really is true!). In the last 3 years I have self funded 3 overseas holidays (between1-6mths long) and bought a new car earning an average of 26,000 per financial year. I would really like to take advantage of using my savings and the rent I could be receiving on the property whilst living at home to make a head start on the mortgage.

If the property loan is split say 50/50 wouldn’t the loan amount be 200,000 which I feel I could service (repayments of $925 per fortnight at 9.5% interest giving me $751 left over including half of the rental income of $276 ($300 as a conservative estimate minus 8% property management fee - I have received quotes ranging from 300-340/wk) and taking out $160 of expenses for strata, council, and water).

One other option I thought late last night (not sure if this is possible) but if my parents pay the deposit leaving my $20,000 as a cash buffer for my repayments and this is reflected in the percentage of the property they own?

My parents are willing and able to act either as guarantor (using a cash security rather than house based equity & a servicing guarantor if necessary) or purchase a percentage of the property with me, with the intention that I purchase this back from them when I would be in a more stable situation. My parents own their home outright ($800K+) and earn approx $100K.

Sorry again about the long email, but as this a major decision I want to try and get as much info as possible!

 

[bcoombs]

Think you should get some tax advice on this splitting decision. I think when you transfer you would be up for stamp duty as its a 'purchase' and your parents perhaps CGT. But I am not an accountant. You seem hell bent on lumping your parents into the mix. Remember something happens they are also liable, not only for their side of the debt, but also yours. Family pledge etc sounds like a good idea, but has its issues. You say you can fund extra holidays etc... why not just save more deposit.

 

[Peter_Tersteeg]

You might be able to purchase an investment property with your resources. Additional rental income might make this more affordable for you.

If you don't feel you could service the full debt on your own, they you shouldn't be doing this. Damage done by defaulting on a property could take years to repair. If your parents are helping you, it could damage them as well.

I wouldn't feel comfortable making repayments from savings. It's definitely good to have money for an emergency, but you shouldn't be spending it on day to day expenses.

If you're looking at a joint venture with parents (50/50 ownership), make sure that it is fully intended to be a joint venture and not just them helping you. They would have tax implications and they would need to be responsible for the loan.

My general suggestion would be wait until you've finished uni and in a position to do this on your own from an affordability perspective. There will be other opportunities.

 

[The Y-man]

I would really like to take advantage of using my savings and the rent I could be receiving on the property whilst living at home

So why residential property in particular? Why not some other less capital intensive avenues such as reit's, shares, term deposit etc?

The Y-man

 

[cmason]

Also agree on leaving the parents out of it. They are all keen now as they want to do whatever they can to help their child but when it comes to a default(could be unforeseen circumstances, or something out of your control) then their property will be in the sights of the lender.

Have been to many mortgagee open for inspections where the owners were turfed out as a result of guaranteeing their children's house or business(from the REA's mouth so taken with a grain of salt) which defaulted.

Another case of someone close to me where they went guarantor to their son's home then 12 months down the track wanted to buy a property and were unable to because the equity was tied up in the guarantor.

 

[Bigtone]

Bigtone...honestly that is not great advice....

The person obviously has good intentions but wont be able to service this loan, its that simple.

Forget pumping up dodgy brokers.....just look at this persons situation which has been clearly outlined..

Any broker who actually got this person a loan should be given a firm uppercut and be removed from the industry...even more so in the current market climate.

honestly csc2 u have no idea what great advice is and what it not, there r dozens of ways it could be structured to work out very well with very little risk to her. whether it is a great time to buy now is another thing but as i said if she really wants to it would easy and could be set-up with very big safety nets.

As for pumping up dodgy brokers i don't remember recommending or pumping up anyone. I simply said a "decent broker could get you the money".

She has saved $25k, earns $50k a year, lives at home and will soon get a full time professional job. Ideal lending candidate in my opinion. If she was my sister i would have no hesitation in recommending she proceeds now.

 

[csc2]

With respect...I cant argue with foolish comments....

A blind mans labrador could see there is a huge issue with this.

My opinion is for the person to look at alternatives to buy ie: unit or smaller property or whatever to get her serviceability more friendly and comfortable...no matter what you say it currently isn't...................I couldn't sleep at night having given advice like you have to anyone.

Any mug can borrow a squillion dollars...its not that difficult, even today.....the key is to try and be comfortable with repayments as things stand riight now and if the things become tight down the track...the lady sure is earning $700 nett but until she has a substantial solid salary when she finishes her course that is all any bank will be looking at in my opinion, not what she may earn in a years time or whatever.

Who knows what tomorrow brings....

Best of luck.

 

[Sunder]

Certainly looks like a risky move, although has anyone considered that:

1. She would get around $300-$350 in rent (guessing from purchase price)

2. The difference between rent and repayments could be negatively geared, assisting cashflow?

Personally, I wouldn't do it. But if I was somehow "forced" to, I would

1. Use parents are guarantor, rather than on-title,

2. Made sure I kept 3 months buffer, and a willingness to flip burgers or scrub toilets if absolutely necessary to not ever use that guarantee.

To be honest though, when my wife (then fiance) was earning $65k a year, they wouldn't lend more than $280k. That was in the crux of the GFC though. I went guarantor for her so we could buy our family home.

So I think you'd be pretty lucky to get a $350k loan on 50k gross a year, even with improved lending conditions.

 

[Corey Batt]

In your position I would be looking at smaller/cheaper properties, circa 250k and use as an IP
Using the incredibly unreliable borrowing calc's offered by CBA, they 'suggest' that you can make a loan up to $247k (under the assumption that your $700/week after tax is $42000 per annum). With your 25k used for deposit, stamp duty you could get across the line. Weekly repayments at $428/week, so rented you should be able to comfortably get the ball rolling whilst still at home. This also means you can absorb repayments to a degree if vacant.

You can get a loan as a casual in Uni, I would just not mention getting another job any time soon.

Edit: Oh look, another young Adelaider. Go team

 

[Francine]

i wouldnt do anything risky where you could all stand to lose everything.



having said that
my family did help me buy my current ppor decades ago by putting the title into it of her valuable assett. Not a good way to do it as you've mentioned better ways.

somehow by miracles we have managed against so many odds but it could easily have gone a different way without stable careers and incomes. when we bought it interest rates went up to some 17 % making repayments enormous 3 times what they are today. We are still paying it off decades later but we havent defaulted and the growth of its value has been enormous