How much can my friend borrow?

[wylie]

I'm doing homework for a friend, overwhelmed by the crap happening in her life but keen to buy a home. She has no deposit due to bringing up two kids and an ex-husband who let her pay for everything, so no savings.

She thinks she cannot borrow until she saves a deposit, but I'm keen to give her some idea of whether that is true and/or what she can borrow.

Ballpark situation -

Income $85K
Age 52
Savings - none, kids just moved out so she can now start to save
Deposit - None (see above)
She has been bringing up the kids and paying rent for seven years - now living rent free whilst she tidies up her mother's house. She can live there just paying expenses for a little while, but with Brisbane market moving, she needs to buy soon or find the market outstripping her ability to borrow.

The mother's house will need to be rented or sold in order to finalise payment of a nursing home bond, so she has a window of opportunity to stay there, but not at the cost of having house prices get out of hand. Hence my hope she buys sooner than later, but with no deposit, is this possible?

One day she will inherit with one sibling.

I've suggested she buy a house, move in for however long is necessary to protect its CGT free status and if she is struggling, move out and rent cheaper until she gets on her feet financially.

How much could she borrow?
What limitations does her age bring regarding loan term?
Can she borrow now or must she save a deposit?

 

[Marty McDonald]

With no deposit she can't borrow at all unless someone provides security and guarantees.

If she had a guarantor she could borrow around $500K over 25 years

 

[wylie]

With no deposit she can't borrow at all unless someone provides security and guarantees.

If she had a guarantor she could borrow around $500K over 25 years

Thanks Marty. If she can borrow from her mother, how much deposit would she need to buy something for, say, $500K maximum.

She has EPA for her mum, and I believe she could swing this private loan, which I'm also guessing she would have to declare to a bank... or could she keep it private, like a "pay when able" loan or a "you will receive that much less when I die" set up?

 

[Terry_w]

Thanks Marty. If she can borrow from her mother, how much deposit would she need to buy something for, say, $500K maximum.

She has EPA for her mum, and I believe she could swing this private loan, which I'm also guessing she would have to declare to a bank... or could she keep it private, like a "pay when able" loan or a "you will receive that much less when I die" set up?

Does the EPA allow the attorney to benefit like this? Otherwise probably a breach of fiduciary duties.

 

[wylie]

Does the EPA allow the attorney to benefit like this? Otherwise probably a breach of fiduciary duties.

I don't know what is in the EPA. Is a loan a "benefit"? Could she do this if someone looked at the EPA? I'm fishing to help her, not put her in prison .

 

[Marty McDonald]

Being over 50 with no real assets I don't think they will be overly keen to give her an LMI covered loan. So 20% deposit plus costs would be ideal or if not possible she may be able to swing a 90% LVR incl LMI.

20% + costs = $112K
10% + costs + LMI = $69K

 

[boeman]

With her Mother as guarantor can she not borrow 105% as purchase price? Or does such a thing not exist any more?

 

[marg4000]

I don't know what is in the EPA. Is a loan a "benefit"? Could she do this if someone looked at the EPA? I'm fishing to help her, not put her in prison .

An EPA usually stipulates that any action has to be for the benefit of the person who gave the legal responsibility.

Hard to see how the daughter could legally use this to benefit herself.

A solicitors advice would probably be worth the fee.
Marg

 

[Brady]

If the funds are being borrowed from the mother would need to include repayments which would decrese her borrowing capacity.

 

[Terry_w]

Yes a loan is definitely a benefit.

It would be unlikely that a bank would accept a guarantee by an attorney person who is incapacitated. It would also be a breach of duties if the attorny is causing the appointor to guarantee the attorney's loan.

 

[sanj]

Yeah using an EPA to loan yourself money certainly doesn't seem right legally or morally but I don't have any specific knowledge that it's illegal.

I suspect your friend isn't going to be able to buy. It's scary how many people there are out there on decent incomes with zero savings, dangerous way to live

 

[wylie]

Ok. Thanks for that info.

Her mother is not incapacitated as such. She can no longer stay in her home and has gone into aged care. She is lucid and I wonder if she lent her daughter some money, or gifted her daughter some money if that would be acceptable.

The EPO is there for when it is needed, but that time is not now.

I know our son didn't have any deposit, but the fact he had some inheritance from my parents meant he didn't need LMI.

So, I guess next question is that if her mother lends or gives her the deposit, how much would be necessary in order for her to borrow to buy something for $500K maximum, without LMI?

 

[wylie]

Yeah using an EPA to loan yourself money certainly doesn't seem right legally or morally but I don't have any specific knowledge that it's illegal.

I suspect your friend isn't going to be able to buy. It's scary how many people there are out there on decent incomes with zero savings, dangerous way to live

Sorry, I didn't make this clear. The EPA is not required at this time. Her mother is quite capable of lending or gifting money.

And regarding no savings, this is not her fault. Her ex-husband managed to lose their $1M home and her savings to a business gone bad, but whilst she was left with nothing, he seems to always have rolls of cash, and paid the absolute minimum for the kids (if anything - I believe technically he was bankrupt). She couldn't afford a forensic accountant, so has just moved on. She has done amazingly well for someone dealt such a cruel card at the age of 45.

While she was looking after teenagers, she had no capacity to save. Now is her time to shine.

 

[wylie]

She is talking units for around $350K but with a little dog, her options are limited. I'm thinking she could look at cheapie houses, but she needs to be close enough to work to make it work.

Worse case, she would need to find a friend to take her dog.

So, I'm picking the price point of $500K because she could find a house close enough to work at that price and keep her dog. (I'm making a lot of assumptions, and also don't know if her mother would lend her the money or gift it either.)

 

[wylie]

I would also add that I'm not trying to find a weasel way of her being able to borrow, rip off her mother or sibling. She is an honest, hard working, moral woman.

I'm just doing some homework as she might not be able to think outside the box on this.

I'm looking for "how to make it happen" scenarios for her.

 

[sanj]

You're a good friend Wylie.

She doesn't really have a long time to get on her feet financially, ultimately a mortgage broker will be able to giver her advice on serviceability but in terms of purchase have you considered her renting a cheapie and getting an IP instead? Or getting a 500k place and getting boarders?

I assume she doesn't have a lot in super, if that's the case she needs to get on top of things asap

 

[wylie]

You're a good friend Wylie.

She doesn't really have a long time to get on her feet financially, ultimately a mortgage broker will be able to giver her advice on serviceability but in terms of purchase have you considered her renting a cheapie and getting an IP instead? Or getting a 500k place and getting boarders?

I assume she doesn't have a lot in super, if that's the case she needs to get on top of things asap

Thanks sanj. I've run those scenarios past her as well, but the stamp duty doubles if she buys it as an IP and rents. That is more money she doesn't have and would need to borrow.

We are going there soon. We are putting grills on her mother's house so she can get some air in and leave some windows open while she is there. I'm gathering what information that I can. She is dealing with a difficult mother, an even more difficult sibling, and deserves to be able to get on her feet after what she's been through.

I just don't want her to do nothing because she thinks there is no way to borrow.

 

[wylie]

One more question...

She realises her best bet is to live cheaply for a little while whilst she clears her mother's house and prepares it for either rental or sale.

Assuming this is her best course of action, how much deposit would she need before being able to borrow for a PPOR, say $450K (probably less...) which would also mean duty of about $7K and hopefully avoid LMI?

 

[Rolf Latham]

If she had a guarantor she could borrow around $500K over 25 years

xcept she would be 77 and I am seeing many lenders under the guise of NCCP asking for loan terms concluding at 65 to 70 depending on what the borrower does for a living.

In this case, could be further complicated by my assumption of not much retirement money/super/exit strategy.

ta
rolf

 

[wylie]

Thanks Rolf. She will inherit roughly half a house one day at which time that will help reduce her debt.

Can you help with the answer above re how much she needs to save?