First Investment property deposit required?

[Cumulonimbus]

Hi Guys,

Have just finished the book 'More Wealth from Residential Property', throughly enjoyed the book. I cant wait to read it over again!

Anyhows.... I live in Brisbane and have taken Jan's advice and chosen a suburb that is close to the CBD, with public transport nearby with a bit of both yield and growth.

I am looking to purchase a 2 bedroom unit for the median sale value in the suburb being $280,000

I have had a steady job for almost three years with the same company earning $75,000 annually (including super), i have moved into a couple of different rentals during this period (not sure if this counts against me).

My question is, what should i aim to have saved to get approved on my first mortgage (investment only)? I want to put down around %10 but am aware that the financial institutions have their own valuers that can mean they see the property worth less than i buy it for.

I wont qualify for FHOG as it will be investment only, %10 of $280,000 is $28k, will saving $28k be a safe bet?

Any other tips or advice appreciated.

I do wonder if i would be better off applying with only %5?

Im drawn towards an interest only mortgage, with plans in the future to acquire more property.

Im 26 by the way.

Thanks

 

[Jamie M]

Hi and welcome aboard

How much to use for a deposit? It's a personal choice that largely comes down to your appetite to risk.

Using 10% can be a good option - you pay a bit of LMI but it's a deductible expense (it wouldn't be too high on that purchase price anyway).

Quite a lot of lenders allow you to release equity at 90% too - so if there's some capital growth and/or improvements made to the property you might be able to take the loan back up to 90%, access some equity and go again.

95% loans for IPs are harder to come by these days - and the lenders that do them tend to not add LMI on top (so it becomes more like a 93% + LMI loan). The LMI is quite a bit more - and the credit scoring of these applications (the way banks assess the application) becomes harsher.

In terms of valuers - for a purchase, the majority of the time they'll value the property at the purchase price. It's also a good idea to have your finances formally approved (so valuation has already been returned) before fully committing to the purchase (so that means using a "subject to finance" clause for the purchase).

Cheers

Jamie

 

[Spades]

Hiya Cumulonimbus,

Good for you,you have made a head start via educating oneself,also read and ask ?'s on SS.

Jamie M has good advice as above and recommend a broker either in state or inter state,works both ways.

Have you thought of utilizing FHBG and living in it for 6mnths(as per requirements?)And then leasing out?

Food for thought,good luck in your journey

 

[Cumulonimbus]

Thanks for the info Jamie really appreciate that.

Spades, yes it could be an option if the benifits were worth it. Asides from the FHOG, what are the other benifits to living in the first property for six months?

 

[Peter_Tersteeg]

A few things have been missed.

You also need to account for stamp duty. It varies from state to state and there's plenty of calculators available, but 5% is a good rule of thumb for the purchase costs (which include stamp duty).

Thus a 10% deposit really means you need about 15%.

Better options are also available if you don't need to capitalise the mortgage insurance. At 90% this is about 2% of the loan amount, so this ends up being 17% of the purchase price.

Mortgage insurance on a 95% loan is between 3.5% and 4.5% (depends on the price point and lender). For an investment property the best you can expect is a 91.5% loan plus LMI. In this scenario you'll need 5% for costs, 3.5%+ for LMI and 5% deposit (total 13.5% or more). This is about the minimum you can get away with in an investment purchase but I think there's some disadvantages in it as well:
* if you can put down an additional 1.5% and get 15% together you'll qualify for a 90% +LMI lend, with better terms and interest rates.
* lots of other more subtle benefits later on as well.

You won't get the FHOG for an established house, it's only applicable to new houses these days. You do get stamp duty reductions or even waivers, so this can bring down the amounts required. This is used by quite a few people as a booster to get them into the property market sooner with less cash. The website www.firsthome.gov.au has links to the information for each state.

 

[Qlds007]

You could look to buy the property as an owner occupied property and you would be exempt from Stamp Duty however in Qld would need to live in the property for 12 months.

With the right lender you could look at a 95% lvr less LMI and set yourself up for an IP purchase down the track

 

[Marty McDonald]

Still 1 major doing 97% incl lim investment btw and keen to lend.

 

[tobe]

2 from my count, both limitiing to 97% including LMI.

 

[jameso]

Depends on your strategy.

You could go for 95% lend plus stamp and legals
This way it's minimal outlay. So you can start saving for IP 2 faster. Do the same 95 plus costs for IP 2. Maybe by then ip 1 has increased in value enough to be able to refinance and pull out deposit for IP 3. You've already paid lmi so worth keeping ip 1 loan.

More IP's = more chance of capital gains (hopefully)

 

[Cumulonimbus]

Thanks for all the info guys, time to get saving!

I like the idea of 95%.

Richard, i will get in contact with you when i have the 5% saved