Loan when investing with friends

[beej]

Hi
After having a pre-approval in place for some time we decided to sign a purchase contract on our first IP with friends (highest earner in each couple are parties to contract). Well, turns out that although our required 50% share is much less than our pre-approval no lender seems to want to loan us the money. The other party to the contract have a line of credit so are effectively paying cash however we want to mortgage our portion leaving equity in our PPOR for other investing when we are ready. Our friend has agreed to sign a third party mortgage guarantor but even this does not seem to be enough for the banks. We would be right at our limit of 80% LVR if we mortgaged against our PPOR and if we cannot get security over our IP then wont this limit future investing activity anyway?
I hope this makes sense....
Any ideas?

 

[Spectre]

Is this right -

If
A (you)- borrowing 50% of the new property against the new place
B (them) - borrowing 50% of the new property against their existing ppr

new place in the name of A&B personally

B is ok to offer a guarantee for A

Same lender in the purchase of the new place? i.e. B isnt trying to use for example nab with his place and the new one and somehow cross secure and you're trying to use cba (as then you have banks jostling for ranking of mortgage which would create a conflict)

Not a low doc?

 

[beej]

All correct. No bank jostling. They are using Line of Credit so no mortgage over the IP needed on their side as borrowing against LOC on their PPOR. Ours (A) would be the only mortgage on the place and would only be for half the total value of the place.
Yes, they are offering guarantee for us (very good friends!).
Not a lo doc loan - sound financial background with long term employment and good credit history.

 

[Spectre]

without knowing the rest of the details, it doesnt make sense then - unless its a security issue like a 2sq meter unit or rural/regional but even then

Who are you using as a bank... off the top of my head I'd say use a major and skip your little ones - obviously I'm going to say find a broker to paddle you thru the muddy waters ;-)

 

[beej]

It is in a rural area (pop approx 8000) but nobody has said this is the actual problem citing the security position as being the issue. From my simplistic viewpoint, I would have thought if you could take security over the whole property with a guarantee in place as well that you, as a bank, would be laughing.
We DO have a broker and he is the one having problems with the banks! Think I will call the one of the banks in question myself tomorrow and try to get to the bottom of this cos either I am not understanding the problem or they are not being clear about the actual problem.......

Thanks for your input as I thought we might be missing something.

 

[Medine]

Hi Beej,

Has your broker talked with CBA?
They have a structure where you can stay quite separate from your friends that used to be great in these situations.
Although the banks are changing their policies so quickly at the moment, so you really need to ask the specific question.

Cheers, Medine

 

[Bradsdad]

It all seems a little strange on the surface. May i ask what postcode the property is at, the size & if it's income producing (grapes, stock, crops etc)?


Regards
Steve

 

[Finance guru]

Hi Beej,
I was going to suggest having a look at the CBA loan too, but Medine got in first! From what you've said it sounds like what you're looking for.

It's called a property share loan.

cheers

 

[beej]

Thanks for your thoughtful responses. I rang CBA and so did my broker at a separate time. Call Centre guy said we could although not the property share loan as that would only be available if we were going to live in the property. Our broker spoke to an account manager (or whatever they are called) at CBA and they said no way.
My advice - buy in your own name so you 'own' the security. Friendship is great but can really hurt your investment strategy. We have had to apply for a loan using equity in our own home but will probably come up short and need LMI. This will also lock up our equity should we need it for something else.

 

[Spectre]

Beej

I emailed cba - this is the response.

-----


Good morning

With full docs it fits in CBA guide line.

A and B will both borrowers and on the title. A can come as
security/security guarantor.

Thank you.


Commonwealth Bank
Tariq Syed


-----Original Message-----
From: [email protected] [[email protected]]
Sent: Wednesday, 11 June 2008 10:39 PM
To: Broker Assist
Subject: Credit query

Hi

We have 2 applicants looking to borrow to an 80% LVR to purchase an
investment property, Borrower A will be sourcing funds for the
contribution to the purchase from their PPR while borrower B will be
needing to borrow against the new investment property to approx. 60%
lvr. Borrower A is then envisaged to give a security and servicing
guarantee (each as/if required). The ownership of the property will be
in the names of A&B Individually.

This is on a full doc basis.

Can you advise if this fits within cba guidelines and can you offer any
further comment as to where it would not?

Thank you
Richard Luke