How much will they give me

[Grego]

Further to my post below
If I take out a no/low docs loan
what calculations does the lender do to determine how much i can borrow?
I am looking at buying an ip for around $200k but thought is it possible to determine whether i am in a position to borrow more than this? I understand i need to be able to service this but would like to know at any particular time if i can look for futher property to buy.

Thanks
Grego

 

[XBenX]

Im sure Rolf will give a definative answer .... but until then

Two considerations

1/. LVR - Loan/Value Ratio
2/. DSR - Debt Service Ratio

Both of these figures need to fall within the lenders criteria.

Do a search on LVR and DSR and im sure you will find all the info that you need

 

[Lissy]

But isn't the whole point of using something like a no doc loan (and paying the higher interest rate) because you DON'T want the bank assessing you based on LVR and DSR??

 

[bundy1964]

Originally posted by Lissy
But isn't the whole point of using something like a no doc loan (and paying the higher interest rate) because you DON'T want the bank assessing you based on LVR and DSR??

My low doc used my existing IP as securiety so LVR was importent to them, based on the value of my existing holding I suspect they halved the value I should of been able to borrow under LSV because of my DSR and being deemed rent relient.

I think you also have to look at the evils of x-col and how you structure your holdings. Thanks to the lists on PI I will know more if and when I buy IP no. 3

Some low/no docs are short on features as well such as LOC and redraws. On the +ive side once you show them you do know a bit about what you are doing they can lower your interest rate and be a bit more flexable if you want to take out another loan. Will be interesting to see just what discount they will offer when my fixed term is over and if is competative with where I do my banking now. I know I can now save roughly 3k on the brokers fees by dealing directly with them and they are happy to do that.

bundy

 

[Rolf Latham]

Hi Grego

75 to 80 % LVR at reasonable variable rates is the norm.

Your DSR per say is NOT an issue since you declare that you make enough to make the DSR whatever it is.

Most no doc lenders are more fussy on the security quality and location.

Up to 750 000 at early 6s with LVRs at 80 % is possible, with fees around the standard 700 mark.


Ta

Rolf

 

[XBenX]

As Rolf mentioned :

They still take into account both the DSR and LVR in the case of a loc doc/no doc loan you just lie a little(or a lot) more about the figures that makeup your DSR.

Just in passing - I dont think the lenders would actually care if you can service the debt or not if you had adequate security - but thanks to the CCC (consumer credit code - I think this the the applicable legislation ?) they are req'd to ensure that you have the ability to service the debt.

Spose we have to have the rules to protect the ignorant (so that they can remain in bliss)

 

[Jamie]

Hi XBenX,

There was actually something about this in this months API article on Lo/No Docs lending. Apparently the Consumer Credit Code is not relevant for investment loans:

Lenders must abide by the Uniform Consumers Credit Code (UCCC) when writing a standard owner occupied loan , but investment loans are not included in the UCCC (pg 70 Dec/Jan API)

I think this muddies the water a little - if residential investment loans are not subject to the UCCC, what legislation is in force here?

Jamie.

Finance is not my forte, so if Im off track here please let me know

 

[Grego]

Thanks all

Bundy you wrote
>>I think you also have to look at the evils of x-col and how you structure your holdings. Thanks to the lists on PI I will know more if and when I buy IP no. 3 <<
What are the short falls of x-col, other than tying up your PPOR or IPs in the loans? What are the "lists on PI" you refer to?

Rolf
What you are saying is the lender will look at my total collateral
ie: what the value of my PPOR and IPs are, & what percentage of these i own & then supposedly give me around 75-80% of this,
up to approx $700k?

Thanks
Grego

 

[XBenX]

Hrmm Jamie - you've confused me now

I thought the basic premise was that they werent allowed to provide finance to ppl who couldnt repay..... but as you mentioned this might only apply to owner occupied property... can someone clairify this ?

But if that is not relevant for investment loans then I would be unsure as to why banks would place any servicing criteria on investment loans where adequate security is provided.

This is due to the fact that say I had my $100 PPOR as security (no loan), I wanted to borrow $50 for an IP worth $50. Therefore even if I defaulted the bank would have $150 worth of security that they could sell in order to repay a loan of $50 (+ costs)

So even if you cant service the debt they'd make money by just having say a high default fee or a huge interest rate on overdue amounts then they sell your properties to get that money.

 

[bundy1964]

Originally posted by Grego
Thanks all

Bundy you wrote
>>I think you also have to look at the evils of x-col and how you structure your holdings. Thanks to the lists on PI I will know more if and when I buy IP no. 3 <<
What are the short falls of x-col, other than tying up your PPOR or IPs in the loans? What are the "lists on PI" you refer to?

This one.

Lissy's list on MSN ( a lot of us are members of both lists )

and there is a list on yahoo for Australian IP's to say it is a bit quiet so far is an understatement

bundy

 

[brains]

Originally posted by XBenX
Hrmm Jamie - you've confused me now

I thought the basic premise was that they werent allowed to provide finance to ppl who couldnt repay..... but as you mentioned this might only apply to owner occupied property... can someone clairify this ?

But if that is not relevant for investment loans then I would be unsure as to why banks would place any servicing criteria on investment loans where adequate security is provided.

This is due to the fact that say I had my $100 PPOR as security (no loan), I wanted to borrow $50 for an IP worth $50. Therefore even if I defaulted the bank would have $150 worth of security that they could sell in order to repay a loan of $50 (+ costs)

So even if you cant service the debt they'd make money by just having say a high default fee or a huge interest rate on overdue amounts then they sell your properties to get that money.

Hes just saying the Uniform Consumer Credit Code doesnt apply to IP loans, only to Owner Occupied loans.

 

[XBenX]

Thats not what confused me....what confused me is if the CCC is not relevant and you have enough equity then why bother about the DSR at all

The example shows why the DSR is not relevant when the CCC does not apply, they can still make money even if you default.

 

[Rolf Latham]

Hi all

The DSR does matter.

While the UCCC technically does not apply to loans that are mainly for investment purposes, most lenders still want coverage that you can afford the loan - hence the declaration.

Selling a security is a last resort. Lenders make their money from regular little payments of interest, and not from defaults. They very much prefer to avoid them.

ta

rolf

 

[XBenX]

Not to mention the fact that they'd be on tabloid tv every 10 minutes because they are kicking poor gran or poor bob the unemployed builder out of THEIR house

Still, I cant see why a lender doesnt take this strategy if the CCC doesnt apply - just charge huge default fees etc

 

[bundy1964]

Originally posted by XBenX
Still, I cant see why a lender doesnt take this strategy if the CCC doesnt apply - just charge huge default fees etc

Without checking my paperwork I think my low doc loan has a 3% default rate plus the usual fees if a payment is dishonoured.

bundy