OTP finance settlement issues / questions

[Jamess17]

Scenario:
- OTP property due for completion & settlement mid-June
- 10% deposit paid
- Partner & I entered contract both employed with significant income to service loan
- I have since lost my job and partner's income insufficient to service loan as owner-occupier
- However, partner's income is sufficient to service loan as an IP according to online calculators
- LVR will be less than 80%
- Partner is on a fixed term contract at work, expected to go permanent sometime in May
- We have listed the property for sale in the hope of flipping prior to settlement
- If we cannot flip, our intention is to settle and sell ASAP as we cannot afford to hold as owner-occupiers and would prefer cash in the bank rather than tied up in IP

Some of the complications are pretty clear, so onto my questions:

1. Does it matter if my "Person A & Person B" is the Purchaser but the Borrower is Person B? In other words, should I have my name removed from the contract and have only my partner purchase the property? Or is this irrelevant as long as she can service the loan?

2. We haven't spoken to a broker yet, but I'm guessing my partner's contractor status means that it will be nearly impossible for her to get an IP loan approved. Is this correct and/or any solutions?

3. Since our intention is to sell ASAP if we end up settling, are there any loan products that would be suitable to avoid break fees or that allow you to sell with no penalty?

4. Would bridging finance be an option so we could settle and then sell? Would we even be eligible?

5. In the event we cannot finance the purchase and have to walk away from our deposit, what are the possible legal ramifications? I understand the vendor would retain our deposit and interest on our Deposit Guarantee, but what is the likelihood that they'd persue for damages, say chase us for the difference between our purchase price and the resale? (which is very unlikely to be negative, more likely to have profited from our default) The vendor is a large ASX listed developer.

First post at a great forum I've been browsing for a while. Keep up the good work everybody.

 

[rugrat]

I think you should get in touch with a broker, give them all the information and income details and see what they have to say.

 

[Jamess17]

I think you should get in touch with a broker, give them all the information and income details and see what they have to say.

Thanks and agree.

Should've noted that we already have an appointment to see one this weekend.

 

[Propertunity]

1. Does it matter if my "Person A & Person B" is the Purchaser but the Borrower is Person B? In other words, should I have my name removed from the contract and have only my partner purchase the property? Or is this irrelevant as long as she can service the loan?

You cannot have your name removed from the contract at this stage. You'll just need to proceed as is with your partner making the loan repayments. But you will be jointly and severally liable.

2. We haven't spoken to a broker yet, but I'm guessing my partner's contractor status means that it will be nearly impossible for her to get an IP loan approved. Is this correct and/or any solutions?

You don't have finance approval at this stage? Wow.
Partner's contractor status should not be an issue getting a loan if she's been doing the same thing for a few years.

3. Since our intention is to sell ASAP if we end up settling, are there any loan products that would be suitable to avoid break fees or that allow you to sell with no penalty?

Yes, your broker will advise.

4. Would bridging finance be an option so we could settle and then sell? Would we even be eligible?

No and no - you are not bridging anything. i.e. selling one place to get funds or part funds for this purchase.

5. In the event we cannot finance the purchase and have to walk away from our deposit, what are the possible legal ramifications? I understand the vendor would retain our deposit and interest on our Deposit Guarantee, but what is the likelihood that they'd persue for damages, say chase us for the difference between our purchase price and the resale? (which is very unlikely to be negative, more likely to have profited from our default) The vendor is a large ASX listed developer.

Vendor keeps deposit as you've already indicated and sue for diff in final selling price. If they make a gain - no need to sue you. If they sell for same price - sue you for marketing / legal costs of obtaining new purchaser. Very real threat if they are ASX listed IMO.

 

[Jamess17]

Thanks for the reply.

You don't have finance approval at this stage? Wow.

We had pre-approval to purchase as owner-occupiers with dual incomes but given I lost my job very recently things have obviously changed significantly both in terms of our eligibility for different loan types and our intention to hold versus sell.

 

[Qlds007]

Unless they charge you a fee i dont think you would find too many Brokers rushing in to assist on this one as if the property is sold within 12 months s(sometimes 18) the Brokers commission will be clawed back and he or she will have done all of the work for nothing.

Admitedly there maybe future potential business but with most Brokers absolutely flat chat on processing normal deals a freebee is probably out of the question at the moment.

Good luck.

 

[The Y-man]

- I have since lost my job and partner's income insufficient to service loan as owner-occupier
.

Do you intend to be out of work until June?

Cheers,

The Y-man

 

[The Y-man]

Jamess17,

If it came to the crunch, how much (% wise) cash have you got to settle the deal (eg if you went emergency mode) - you said you can go less than 80% LVR - can you go lower? eg 50%

If you flip/resell is at a LOSS, would you keep it or still offload (beware vultures overhead )

The Y-man

 

[AUSPROP...]

if you don't settle and they can sell it for the same or more, then you won't have to pay for the stamp duty or real estate agents costs or the mortgage set up and discharge fees and stamp duty on the mortgage and insurance whilst you own it etc. Sometimes it's easier to walk away.

 

[Jamess17]

Unless they charge you a fee i dont think you would find too many Brokers rushing in to assist on this one as if the property is sold within 12 months s(sometimes 18) the Brokers commission will be clawed back and he or she will have done all of the work for nothing.

Admitedly there maybe future potential business but with most Brokers absolutely flat chat on processing normal deals a freebee is probably out of the question at the moment.

Good luck.

Good to know.

Do you intend to be out of work until June?

Cheers,

The Y-man

Not if I can help it but not counting on it. Will be very difficult to find something permanent before then, especially in my area of expertise.

Jamess17,

If it came to the crunch, how much (% wise) cash have you got to settle the deal (eg if you went emergency mode) - you said you can go less than 80% LVR - can you go lower? eg 50%

If you flip/resell is at a LOSS, would you keep it or still offload (beware vultures overhead )

The Y-man

Circa 70%.

Fortunately the likelihood of flipping at a loss is very low given unless the bottom well and truly falls out of the market. But willing to wear a loss as long as it's less than 10% including costs. Otherwise easier to walk away.

if you don't settle and they can sell it for the same or more, then you won't have to pay for the stamp duty or real estate agents costs or the mortgage set up and discharge fees and stamp duty on the mortgage and insurance whilst you own it etc. Sometimes it's easier to walk away.

Current thinking is that it has appreciated enough for this to be an absolute last resort, depending on how our financing goes of course.