Help with finance for IP for newbie

[A&P]

Hi all,

We have just found an IP today, a 3 bed townhouse and have agreed on the price and will sign tomorrow. We are assuming there won't be a problem with the bank but would like some advice on how to structure the loan and if we would have to pay mortgage insurance or not?

Our PPOR is valued at $520k and our loan on it is $110k.
The IP is $290k plus stamp duty and fees..say $300k, we need to borrow.Don't want to put any cash into it at all so need to borrow full amount.

How should we stucture the IP loan and would we need to pay mortgage insurance or would we have enough equity in our PPOR to not have to? How much is mortgage insurance anyway...have no idea.

Thanks in advance, A&P

 

[alexlee]

Finance should be sorted BEFORE you start looking at properties.

Call a broker on Monday. Not the bank you have your current mortgage with.

I'm assuming the property is in Sydney. What cooling off period are you going to put on the contract when you pay the 0.25%? Once you sign, the clock starts ticking.

You should seriously consider letting the property go and get finance sorted first.

BTW, didn't you ask basically the same question two years ago? What happened?

 

[Nth Brisbanite]

Finance should be sorted BEFORE you start looking at properties.

You should seriously consider letting the property go and get finance sorted first.

I agree that you should have finance sorted out before signing up, Mortgage insurance can be very expensive and can only be calculated once you have contacted a bank or a broker. Who told you that you shouldn't have any problem getting a loan?

Don't agree that you should let the property go yet but you will have to get moving soon to see whether your qualify for a loan.

 

[A&P]

Finance should be sorted BEFORE you start looking at properties.

Call a broker on Monday. Not the bank you have your current mortgage with.

I'm assuming the property is in Sydney. What cooling off period are you going to put on the contract when you pay the 0.25%? Once you sign, the clock starts ticking.

You should seriously consider letting the property go and get finance sorted first.

BTW, didn't you ask basically the same question two years ago? What happened?

Yes property is in Sydney. Yes was going to do this previously but circumstances changed, won't go into details. We have since just downsized our home and our debt and did mention to the bank 3 months ago when we borrowed for this place that we would be looking to buy an IP very soon and they said it won't be a problem. I can't see it being a problem since we have $410k equity in our PPOR and the valuation on our PPOR was only done 3 months ago so shouldn't have changed...hopefully and no other debt at all.

 

[alexlee]

I agree that you should have finance sorted out before signing up, Mortgage insurance can be very expensive and can only be calculated once you have contacted a bank or a broker. Who told you that you shouldn't have any problem getting a loan?

If those numbers are correct, A&P has more than enough equity to keep everything below 80%.

Don't agree that you should let the property go yet but you will have to get moving soon to see whether your qualify for a loan.

Are you aware that for NSW contracts, once you pass the cooling off period (standard is 5 days, but can be changed, and can be extended with the seller's agreement after contracts are exchanged), the contract becomes unconditional? It's not like Qld where you can put a subject to finance clause that expires a month after you sign the contract and have plenty of time to look for finance and the option to crash the contract without penalty.

 

[A&P]

Finance should be sorted BEFORE you start looking at properties.

Call a broker on Monday. Not the bank you have your current mortgage with.

I'm assuming the property is in Sydney. What cooling off period are you going to put on the contract when you pay the 0.25%? Once you sign, the clock starts ticking.

You should seriously consider letting the property go and get finance sorted first.

BTW, didn't you ask basically the same question two years ago? What happened?

BTW....will be signing with a 10 day cooling off period. We deal with a small building society who are quite fast with processing loans. After looking at many places over the last week we really like this one and would risk losing our $750 .25% than lose the property to someone else.

 

[alexlee]

I can't see it being a problem since we have $410k equity in our PPOR and the valuation on our PPOR was only done 3 months ago so shouldn't have changed...hopefully and no other debt at all.

The LVR isn't a problem. Do you understand what cross-col is? Do you need offset accounts? Does you bank offer them?

The cooling off period is a bad time to find out what you need to know. Just be mentally prepared that you MIGHT have to crash the contract if you can't get approvals in time. Liking an IP, by the way, is also something you should try to avoid.

 

[A&P]

The LVR isn't a problem. Do you understand what cross-col is? Do you need offset accounts? Does you bank offer them?

The cooling off period is a bad time to find out what you need to know. Just be mentally prepared that you MIGHT have to crash the contract if you can't get approvals in time. Liking an IP, by the way, is also something you should try to avoid.

My understanding is that we will end up with essentially 3 loans from memory when asking our bank about it when we organised our home loan and enquired about an IP loan, our PPOR, a loan for the 20% deposit (using equity in our house) and a loan for the 80% balance....am i right in this? I'm no expert thats for sure. Yes looking at the banks website they offer offset account as part of the loan. We are thinking of taking out a 5 year fixed loan.

And gee...sorry for liking the IP! but hey if you only seen the places we looked at then seen this one i'm sure you would like it too!

 

[jim1964]

My understanding is that we will end up with essentially 3 loans from memory when asking our bank about it when we organised our home loan and enquired about an IP loan, our PPOR, a loan for the 20% deposit (using equity in our house) and a loan for the 80% balance....am i right in this? I'm no expert thats for sure. Yes looking at the banks website they offer offset account as part of the loan. We are thinking of taking out a 5 year fixed loan.

And gee...sorry for liking the IP! but hey if you only seen the places we looked at then seen this one i'm sure you would like it too!

This sounds like an emotional buy."Liking it" is all well and good for your PPOR,but investing in it is a different game.You are buying it with hopefully a structured plan of what do you want to achieve from the property.Can i ask you what this is?

 

[A&P]

This sounds like an emotional buy."Liking it" is all well and good for your PPOR,but investing in it is a different game.You are buying it with hopefully a structured plan of what do you want to achieve from the property.Can i ask you what this is?

We are buying a IP as we don't want to keep paying into our super fund...would rather not put all our eggs in one basket. So this is a long term investment. We wanted an easy care/maintenance property in good condition in a good location close to shops, schools, transport etc. The property has a good long term tenant wanting to stay who looks after it as their own. Ticks all the boxes we hoped to achieve. Of course we are hoping for good gain over the coming years but hey we don't have a crystal ball so have to wait to see how that pans out. Didn't realise "Liking it" would be such a crime! But hey if I like it i'm sure it will appeal to future tenants....unlike the majority of places we looked at.

 

[A&P]

oh and the return is good....well i'm happy with it. Cost $290k and rent is $370 per week with strata of $450 pq...obviously this can change but not bad.

 

[alexlee]

But hey if I like it i'm sure it will appeal to future tenants....

Not exactly. It'll appeal to tenants who are like you. If you represent a group that's not who you want as tenants, that might be a problem.

unlike the majority of places we looked at.

Yet, with the right numbers, you'll be able to find tenants for those places too. Just because it's a place you don't want to live in doesn't mean other people don't want to live in it, at the right rent.

 

[Rolf Latham]

Hi all,

We have just found an IP today, a 3 bed townhouse and have agreed on the price and will sign tomorrow. We are assuming there won't be a problem with the bank but would like some advice on how to structure the loan and if we would have to pay mortgage insurance or not?

Our PPOR is valued at $520k and our loan on it is $110k.
The IP is $290k plus stamp duty and fees..say $300k, we need to borrow.Don't want to put any cash into it at all so need to borrow full amount.

How should we stucture the IP loan and would we need to pay mortgage insurance or would we have enough equity in our PPOR to not have to? How much is mortgage insurance anyway...have no idea.

Thanks in advance, A&P

Hi AP

Looking at this first post, and then your later responses, my immediate response isyou might want to direct your questions to your fast and friendly Building society

best BROKER practice typically in a scenario like this is to have structures in place before moving fwd, however in ur case its not going to be a major issue.......

1. Ask said BS to set upa 306 000 equity loan secured to the PPOR only in such a way that you will only pay for what you use

2 . As k the BS to set up a 232 000 loan secired ONLY to the new IP, interest only on whatever variable or fixed preference you have

My recent experience with a CU thats HUGE is less than impressive, so I hope your BS is not normal


ta

rolf

 

[A&P]

Hi AP

Looking at this first post, and then your later responses, my immediate response isyou might want to direct your questions to your fast and friendly Building society

best BROKER practice typically in a scenario like this is to have structures in place before moving fwd, however in ur case its not going to be a major issue.......

1. Ask said BS to set upa 306 000 equity loan secured to the PPOR only in such a way that you will only pay for what you use

2 . As k the BS to set up a 232 000 loan secired ONLY to the new IP, interest only on whatever variable or fixed preference you have

My recent experience with a CU thats HUGE is less than impressive, so I hope your BS is not normal


ta

rolf

Thankyou Rolf for your helpful information and not just shooting me down because I actually like the property we are buying.

Can i ask with the Equity loan for 306k are we able to draw down this for another property deposit also? are there time restrictions to use it? as we would like to look at a holiday rental in the next 12 months or so.

One more thing, if we sell our PPOR residence in 5 years time like we intend to do we have to pay out the Equity loan or is it totally independent of our existing mortgage?

 

[Rolf Latham]

Can i ask with the Equity loan for 306k are we able to draw down this for another property deposit also? are there time restrictions to use it? as we would like to look at a holiday rental in the next 12 months or so.

yes, on the proviso your lender is ok with that, but dont make that assumption. Most banks are, many Bs and CU arent. There are sensible and structural reasons why I would usually recommend a facility to the full limit the equity will take you, andif your current lender wont play ball, find one that does.

One more thing, if we sell our PPOR residence in 5 years time like we intend to do we have to pay out the Equity loan or is it totally independent of our existing mortgage?

then you need to repay what you have used from the 306, BUT sensible stuctured, in five years you may be able to recover some of this from your IPS

ta

rolf

 

[A&P]

yes, on the proviso your lender is ok with that, but dont make that assumption. Most banks are, many Bs and CU arent. There are sensible and structural reasons why I would usually recommend a facility to the full limit the equity will take you, andif your current lender wont play ball, find one that does.



then you need to repay what you have used from the 306, BUT sensible stuctured, in five years you may be able to recover some of this from your IPS

ta

rolf

Thanks again, that's exactly the information i was after. Feel more confident at least knowing what the best way to structure the loans would be. I did look at the banks website and they have a Line of Credit loan which accesses the Equity in your homeloan. Guessing that would be equivelent to an Equity Line you suggest. We have our appointment on Monday morning with the bank so fingers crossed everything falls into place withough too many sleepless nights.

Thanks again rolf

 

[jim1964]

We are buying a IP as we don't want to keep paying into our super fund...would rather not put all our eggs in one basket. So this is a long term investment. We wanted an easy care/maintenance property in good condition in a good location close to shops, schools, transport etc. The property has a good long term tenant wanting to stay who looks after it as their own. Ticks all the boxes we hoped to achieve. Of course we are hoping for good gain over the coming years but hey we don't have a crystal ball so have to wait to see how that pans out. Didn't realise "Liking it" would be such a crime! But hey if I like it i'm sure it will appeal to future tenants....unlike the majority of places we looked at.

Good to see there is a long term plan in place."Liking It' is not the real issue here we are debating.Reading your 1st post,it comes across as a impulse buy,your comment ......How much is mortgage insurance anyway...have no idea.rings alarm bells,as most peoples 1st stop in the process is sort out the money,then you can go in with "Eyes"open,not buy a IP and go looking for the money,this is where a lot of problems start,Kudos for investing for your future.

 

[alexlee]

We have our appointment on Monday morning with the bank so fingers crossed everything falls into place withough too many sleepless nights.

See, this is where the planning comes in. If you'd talked to your lender or a mortgage broker beforehand and worked everything out, you would be a lot more confident that things will work out. If you have any sleepless nights waiting for the bank to get back to you while the cooling off period is ticking, that's a waste, because it didn't have to happen.

 

[Aaron_C]

Best of luck with the purchase!

 

[Rolf Latham]

Thanks again, that's exactly the information i was after. Feel more confident at least knowing what the best way to structure the loans would be. I did look at the banks website and they have a Line of Credit loan which accesses the Equity in your homeloan. Guessing that would be equivelent to an Equity Line you suggest. We have our appointment on Monday morning with the bank so fingers crossed everything falls into place withough too many sleepless nights.

Thanks again rolf

Hiya

Pls note I did NOT suggest an equity line, rather an equity loan.

As to if a LOC is suitable for you, I cant tell you that based on the limited data

ta
rolf