Finance options - 50% deposit...

[Stark100]

Hello all

A quick question as to whether I have any options in this scenario... Currently have 2 IP's, and am at (or near) the limit of what I can currently borrow. Am considering the purchase of a unit (this will be my PPOR) - purchase price is approx. $500k - I can put in purchase costs plus approx. $250k - but would need to finance the rest (i.e. $250k).

Putting aside questions of whether this is the best use of that $250k at this stage - does the fact that I am only looking at a 50% LVR give me any options for financing the remaining $250k (assuming I am near my current serviceability limit)? Or will all lenders simply look at debt servicability (realise this assessment can vary significantly between lenders), irrespective of what percentage of purchase price I put in?

Some advice would be much appreciated : )

 

[alexlee]

Have you even talked to a mortgage broker at all yet?

 

[Jamie M]

Hi Stark

Different lenders have different ways of calculating serviceability. Just because you suspect you've hit a wall with one lender doesn't mean you'll be excluded from all.

Cheers

Jamie

 

[Rolf Latham]

Hiya Stark

Alluding to what Jamie was saying, its not just even different lenders have diff servicing/affordability criteria, what lender and mortgage insurer you use when can have a big difference.

In general I think youd be able to get a loan unless you are with the top serviceability lenders

A brief chat with a good independent broker like Jamie who posted above will give you a more sure answer

t
arolf

 

[Bradsdad]

In answer to your question Stark, the low LVR won't mask any servicing issues. It will just mean LMI won't need to get involved.

As mentioned already, get someone to crunch you numbers as what one lender will allow will differ from another. If on the other hand you yourself know that this are tight at present, well $250k of non income producing debt certainly isn't going to help .


Regards
Steve

 

[Stark100]

Thanks all for your replies

Probably should have phrased my question a little better - what I was really trying to understand was whether the 50% deposit would help at all from a serviceability standpoint - which I think Steve has answered above. Next step would be to talk to a broker, but if I am found to be at the limit with even the most generous (oxymoron I know) of lenders, was wondering whether the low LVR would provide other options...

 

[Rolf Latham]

but if I am found to be at the limit with even the most generous (oxymoron I know) of lenders,

Unlikley if you speak with a muliptle investment specialist broker like Jamie

ta
rolf

 

[tom32]

In calculating the serviceability criteria would they not also consider the rent he is going to save owning a PPOR? Surely this would push the serviceability back in your favour somewhat.

I guess though the 250k if its in a deposit is paying an income of approx 17k p.a. now potentially covering some of the rent on a 500k property, but nothing like all of it.

For serviceability I suppose the math on the change (to disposable income) at least in theory;

The change in your proposed new position;

+ interest on the 250k mortgage (new expense)
+ interest forgone on the 250k deposit (forgone income)
- your current rent (reduced expense)
+ rates and ownership costs you would not be seeing now as a tennant. (new expense)


This is just logic btw, I have no idea what they do at the bank between pushing the button on the application for finance check and getting back the response all of 5 minutes later. i.e. to make yourself satisfied you can cover the increase expense future disposable income etc. Don't only rely on the bank to peg you back sometimes it is worth examining these decisions for yourself before you launch.

I guess looking at the above whether it will impact on your lifestyle will amount to what you pay in rent now. If you live with family or shared accom it is going to have a much greater impact than if you rent a top floor penthouse unit on your own where it is possible you will have more disposable income after purcahsing. This is the main thing your future disposable income v current would turn on.

Commbank were happy to lend me enough to buy a block of land which I would be incapable of borrowing to build on it later upon further investigation, so definitely don't rely on the bank to know when you are hitting your limit, especialyl when you are putting 50% in yourself. Allows them to make a mistake and it will only cost you in the end not them...