Loan serviceability issues =[

[m.evt]

Good evening!

I'm currently an undergraduate student and currently own an IP which I was fortunate enough to have bought in 2007 before this whole boom business happened. I had paid the deposit for it with money that I had saved up throughout my childhood and it now has approx. 250k of equity. As I am diligently studying , part time work is sporadic but enough to live on and put away some savings (living at home is the best!). I for one am a bit anxious of the fact that my equity is doing a whole lot of not much, especially now as the market has somewhat softened. The equity will probably decrease slightly during this period, however I believe that I have bought well. I would like to use this equity to put down a deposit for another IP(s) in the near future as there is some uncertainty in the market and house prices seem to be letting up somewhat, however as I don't have a stable income stream I don't think banks would look favourably on my loan serviceability. I don't think this is a problem as I have done the numbers and I should be fine on the serviceability side of things. I don't want the parents to guarantor any loans as I am adamant on doing this myself.

I was wondering if any forumites have any ideas about what I can do with all this equity and if there are any loan products that you would like to draw to my attention. Cheers!

Christina

 

[Peter_Tersteeg]

Hi Christina,

Well done on your accomplishments so far. Very few people manage to save long and hard enough to purchase a property before finishing Uni.

The bad news is that under the new laws lenders have to make reasonable enquiries into your ongoing ability to repay the loan. This generally means you need to be able to show them you've got enough income to cover your existing and (potential) future commitments.

If you've got other income from a scholarship or grants, this may help somewhat, but even this is starting to get difficult. If you're getting substantial rental income from your existing/proposed property this would go a long way too. In most instances however, this isn't the case and it's likely you need a stable job.

Your parents can't really help you either with a guarantee as lenders are required by law to ensure that you can afford the loan, not a third party.

Despite this, the brokers here are always happy to run a few numbers for you to investigate in more detail what is possible. If you're not in a position to act now, be confident in the fact that you're in a good position to borrow for more property when you do graduate and find employment.

Also keep in mind that investment doesn't always have to mean borrowing money. Due to the costs, purchasing property does tend to mean borrowing money, but property isn't the only game in town. Share and equity markets are still recovering from the GFC, this Australian dollar is strong. This does potentially create the opportunity to get into these markets at a great time and you don't necessarily need to borrow to do it.

 

[Mick C]

When you say you dont have a " stable income stream "- are you working part-time? causal? and for how long with the current employer.

1. If you been with the same employer for 2 years then "un-stable" income is workable; pending another details.

2. Even tho you think you can afford the loan, the bank looks at the worst case scerinos; even if you did live at home (rent free) some banks takes in a min $650 a month for board/rent money.

And as PT mentioned! well done on getting this far; your well ahead compared to a lot of your peers. The equility in your property will continue to grow so even if you can't access it now...it should be able to access this from day 1 you get a full time job ( even on probation with 2-3 lenders) - which hopefully is soon


Regards
Michael

 

[m.evt]

Thank you for your sage advice and gentle words of encouragement , you guys are awesome here. I am very very fortunate to receive an annual scholarship worth 20k which is deposited quarterly into my bank account, I would usually not divulge the amount but hey, this is the internet. Does this make a difference? Although, at the moment this is used to pay my and my siblings' tuition fees (there is a discount for an up front payment rather than putting it on HECS).

I'm not quite entirely au fait with lo doc loans, but what are my chances of applying for one? PT Bear, do the inquiries into ability to pay the loan include lo doc loans? As far as my understanding of lo doc loans goes, I don't need to provide any proof of income, only to attest to it?

My work used to be part time, but is now casual due to study load, and I haven't worked in the same place for more than a 2 year stretch.

I would really like to try to purchase another IP under my current circumstances as doing a Masters after my undergraduate may be on the cards and I would hate to lose out on CG during this time

I really appreciate your advice, thank you.

Christina

 

[Peter_Tersteeg]

I'm not quite entirely au fait with lo doc loans, but what are my chances of applying for one? PT Bear, do the inquiries into ability to pay the loan include lo doc loans? As far as my understanding of lo doc loans goes, I don't need to provide any proof of income, only to attest to it?

My work used to be part time, but is now casual due to study load, and I haven't worked in the same place for more than a 2 year stretch.

Lo doc loans are only for people who are self employed. You need an ABN for at least 2 years and GST registration for at least 1 year. Whilst you do state your own income, lenders verify this against things like BAS statements and bank trading statements.

Your scholarship might be of help but it's not the most solid evidence of income as lenders like to see that it's ongoing and most scholarships have a limited timeframe.

If you've been in a casual job for more than 12 months there is hope! Most lenders are okay with this.

 

[Mick C]

1. don't think about lo doc/ no doc loan...it arnt worth it ( rate and establish fee is way to high for a young bloke) and not possible in your situation.

2. Paying off your Hecs upfront is smart and will help with the serviceability. Paying upfront you get a 25% discount from the uni as well i did it ...haha

Your problem now is "serviceability" rather then having enough deposit, so paying off your hecs upfront makes sense.

Having said that, it wont solve your problem straight away, you still need a income- If you can show 12month Part-time job ( NOT contracting or casual) our firm should be able to speak to some of the banks and push this for you...if it's full time work then it's ok even for 1 day at work

Regards
Michael