How much can I borrow?

[Meisterin]

I am contemplating on buying a unit/apartment/townhose with 2 bedroom and 2 toilets(it doesn't necessarily have to be 2 bathrooms) in Parramatta area. I hope to pay around 300-320K.

In July 2011, I have started a painting business with my husband and prior to that we worked as sole traders in different industries earning around $10K each per year. When I approached the bank on this basis, the bank said we couldn't borrow any amount because our incomes were insufficient.

However, we have a good savings record and can pay up to $70K upfront on deposit. Also based on our conservative estimate(based on the current turnover of the painting business) we can repay the bank $1200-1500 per month. In about two years times we plan to sell my husbands overseas property which should give us extra $70K to pay off the loan. We don't want to sell this now because of the high Aussie dollar and there is a lease on the property which makes it less attractive for prospective buyers. If the Aussie dollar was where it used to be 2 years ago, I would break the lease and sell it now.

Since my husband and I never bought a property in Australia, we can qualify for both the FHOG and the stamp duty exemption.


What is the maximum amount we can borrow? Also to help out with the finances, we plan to have the place rented out for about 11 months and move in in the 12th month and live there. This should allow us to pay off extra $10K when we move in provided that the property is cashflow neutral.

 

[Rolf Latham]

Hi Hiflo


based on a combined taxable income of 20 k per year, on lender calcs and on Hendersons Poverty Index, and in theory you are below the poverty line, and thus you would find it tough to find any loan I suspect

ta

rolf

 

[Aaron_C]

As Rolf has said your income is insufficient. And since you are both self-employed, you can't use your business income unless you provide 2 years' worth of financials, which you obviously don't have because you just started.

 

[Marty McDonald]

Man I wish I could live on double that. How do you live off that seriously? There must be cash?

 

[Meisterin]

I pay no rent(I live at my parents warehouse, which I manage and rent out to film people on an hourly basis).

Grow some salad veges. And you may not want to believe it, but pick certain type of weeds (replant it at home for consumption) from the parks and pick acorns and make it into cold starch cakes couple of times a year.

And have had to delve into savings when I had to renew the car registration pay for car insurance and other large expenses like that. So we haven't really been able to manage on $20K. Haven't been able to buy new clothes or shoes for 2 years!!! It just covers the basic necessities: food, a little alcohol, internet, mobilephone and hospital cover. Anything over that, we had to delve into savings. I've used about $15K in the past two years.

Rolf, what if I added another person to the loan? When I called the Office of State Revenue they said another person can be on the title(up to 5%) even if they own another home and still qualify for both the stamp duty exemption and FHOG. I have a brother who is on about $80K a year and he may be willing provided that I give him some extra incentive. He has an investment property and as far as I am aware, that property is cashflow neutral or close to neutral without taking depreciation into consideration(he bought brand new in 2008). In this scenario, how much do you think we can borrow?

 

[Ed Barton]

I pay no rent(I live at my parents warehouse, which I manage and rent out to film people on an hourly basis).

Grow some salad veges. And you may not want to believe it, but pick certain type of weeds (replant it at home for consumption) from the parks and pick acorns and make it into cold starch cakes couple of times a year.

And have had to delve into savings when I had to renew the car registration pay for car insurance and other large expenses like that. So we haven't really been able to manage on $20K. Haven't been able to buy new clothes or shoes for 2 years!!! It just covers the basic necessities: food, a little alcohol, internet, mobilephone and hospital cover. Anything over that, we had to delve into savings. I've used about $15K in the past two years.

Rolf, what if I added another person to the loan? When I called the Office of State Revenue they said another person can be on the title(up to 5%) even if they own another home and still qualify for both the stamp duty exemption and FHOG. I have a brother who is on about $80K a year and he may be willing provided that I give him some extra incentive. He has an investment property and as far as I am aware, that property is cashflow neutral or close to neutral without taking depreciation into consideration(he bought brand new in 2008). In this scenario, how much do you think we can borrow?

are you mad? you're struggling financially and you want to take on debt?

 

[Peter_Tersteeg]

hiflo I can understand that there's ways and means of declaring low incomes but managing to actually be able to afford more than that, but unfortuantely you need to be able to verify your income to be able to borrow money these days.

The lo doc loan of simply declaring your income and having a decent deposit is gone. Now days you have to have evidence to back up your declared income.

The best suggestion the brokers here can give is to work hard and make your business profitable. Declare a taxable income and pay the tax to the ATO. This creates irrifutable evidence that the lenders will accept.


You can also add your brother to the loan but lenders will question, "What is his interest in the property?"

With a 5% interest and all of the income to service, it's a bit obvious that he's there as a convinience, not as a genuine ongoing interest. At 20% interest would likely be more appropriate.

Also cashflow neutral for the borrower isn't cashflow neutral for the bank. Lenders add about 1.5% on a P&I basis to most loans and only take about 80% of the rental income into consideration. If you want a proper assessment give a broker a phone call to discuss the specifics in more detail.

 

[Ms Jade]

The best suggestion the brokers here can give is to work hard and make your business profitable. Declare a taxable income and pay the tax to the ATO. This creates irrifutable evidence that the lenders will accept.

This is great advice & it's worth reading again. hiflo, I notice your tag line says "One step at a time." I think the first step is improve your income.

 

[Belbo]

are you mad? you're struggling financially and you want to take on debt?

What Ed said.

 

[Mick C]

Hi,

As the another's have mentioned, it's all bad news at this point...low income + self employed = bad mix...and also on a personal level, why would you place yourself in that sort of financial stress...

Even though there are lender's that will allow short ABN loans ( less then 6 month ABN ) ...the rate is def much higher..and this decrease serviceability quite a bit....and on a $20k income per year (combine!)- you won't be able to service any loan...

However let's look at the numbers-----

Basic figures:
1. Standard ( lowest you can declare) Living expense ( Food, basic expenses etc..) - 2 Adults no kids = ~$2,100 a month = $25,200 a year!!

Just the living expense alone made it negative..

2. Anther expense- Membership, petrol, car etc...
3. Rent?
4. Money for business maybe?

If i used your figure that you can repay the bank $1,500 per month that = $18,000 a year?? JUST for repayments.... even if this is for a IP purchase , so that you get rent- unless you get $700p/w in rent- you will have nothing to live on..

Regards
Michael

I am contemplating on buying a unit/apartment/townhose with 2 bedroom and 2 toilets(it doesn't necessarily have to be 2 bathrooms) in Parramatta area. I hope to pay around 300-320K.

In July 2011, I have started a painting business with my husband and prior to that we worked as sole traders in different industries earning around $10K each per year. When I approached the bank on this basis, the bank said we couldn't borrow any amount because our incomes were insufficient.

However, we have a good savings record and can pay up to $70K upfront on deposit. Also based on our conservative estimate(based on the current turnover of the painting business) we can repay the bank $1200-1500 per month. In about two years times we plan to sell my husbands overseas property which should give us extra $70K to pay off the loan. We don't want to sell this now because of the high Aussie dollar and there is a lease on the property which makes it less attractive for prospective buyers. If the Aussie dollar was where it used to be 2 years ago, I would break the lease and sell it now.

Since my husband and I never bought a property in Australia, we can qualify for both the FHOG and the stamp duty exemption.


What is the maximum amount we can borrow? Also to help out with the finances, we plan to have the place rented out for about 11 months and move in in the 12th month and live there. This should allow us to pay off extra $10K when we move in provided that the property is cashflow neutral.

 

[Meisterin]

Thanks all for your input.

It has given me the starting point on how to go about with my property venture.

On your advice, I went to CBA and NAB and they said they will lend to me - NAB upto $330K. I wouldn't borrow that much in the first place because it will cause financial hardship.

Currently, I am looking to buy at what seems like bargains to me. I am only going to attempt to buy the property if I find an absolute bargain. So knowing the limitation of has helped. In the meantime, I am going to spend more time creating leads for the new business I have with my husband.

 

[Mick C]

U kidding me right? ur telling me your both self employed since June 2011- income of $20k combine...and NAB has offered $330k????

Im either missing something, or the NAB branch staff is just giving you one of their fancy marketing "pre-approval' to make you happy and get you in the door...but really when it does to approval it will be a big fat NO.


Regards
Michael