Question about lending capacity

[Radicals]

So I have an interesting situation. My goal is to purchase an investment property in the next 12 months, I work part time and as a result, have a pretty low (taxable) income stream. But I have a passive income from overseas, which is a monthly gift from my Aunt. Let's make it $500 to make calculations easier. I do not currently own any property and the eventual purchase would be rented out as an IP, I'd continue to live in a share-house to save money.

In the past, I have spoken with the ATO and since it is indeed a gift (I have no ownership or connection to the funds/account) I do not pay tax on it. But when I go to the banks and check my lending capacity, it does not factor in because, as a gift, it is seen as unreliable; "It might stop any day, you don't control it."

I can understand, but I've been getting it for 7 years and I am in constant communications with my Aunt, who is in no danger of losing her funds.

Anyway my point is, are there any (legal!) ways that I could convert this extra passive income to a taxable/reliable income that the banks would recognise?

I was thinking of giving it to a close relative who could then "pay" it back to me as a fee for my services as a labourer or something, for example. Any dangers?

Cheers.

PS; It is not an aunt, and that is not the real value, for confidentiality reasons.

 

[Rolf Latham]

Under policy it would be hard to include

Have u done the rounds of the banks or brokers to see what your taxable,income may borrow or are u working off one banks idea ?

Ta

Rolf

 

[Jamie M]

Hi Radicals

Might be worthwhile getting in touch with Rolf above who's a fellow Queenslander and seeing if he can help - if he can't, no one can.

Cheers

Jamie

 

[Radicals]

Under policy it would be hard to include

Have u done the rounds of the banks or brokers to see what your taxable,income may borrow or are u working off one banks idea ?

Ta

Rolf

Hi Rolf, this is only from speaking to a fella from Aussie home loans (a broker). Any recommendations?

 

[Adelaide]

Giving the money to a relative to pay you a 'wage' could get you both in hot water.

Lenders have a duty to customers to not give them a loan they cannot afford and the government monitors this.

When your loan is over 80% of the value of the purchase of the place, Lenders mortgage insurance is in place, They are there to protect the banks from the owner of the property not being able to reay their loan.
Keeping your loan under 80% will make you a better risk to the lenders and will cost you less. To go over 80% LVR will put mean that the mortgage insurers will assess your ability to service the loan and they will look at your income and expenses very closely. The they will apply a premium.

If you purchase a property valued at $200,000, then you would need a deposit of $40,000 plus settlement fees (around 5%) to keep the loan under 80% LVR.

You may consider this option.
Stop living on your Aunts money and dump it directly into your savings account. Live only your part time work. Save 25% of the purchase price and then buy the house. You will be able to use the rent you will get as income in the assessment.

If you are looking for a higher loan, you will need less deposit, however, the mortgage insurers will look more closely at your situation.

Alternatively, find a way to earn more income either through finding a different job with more pay or hours or find a second job (you will need to have it for at least 6 months before applying for a loan).

 

[Radicals]

Giving the money to a relative to pay you a 'wage' could get you both in hot water.

Lenders have a duty to customers to not give them a loan they cannot afford and the government monitors this.

When your loan is over 80% of the value of the purchase of the place, Lenders mortgage insurance is in place, They are there to protect the banks from the owner of the property not being able to reay their loan.
Keeping your loan under 80% will make you a better risk to the lenders and will cost you less. To go over 80% LVR will put mean that the mortgage insurers will assess your ability to service the loan and they will look at your income and expenses very closely. The they will apply a premium.

If you purchase a property valued at $200,000, then you would need a deposit of $40,000 plus settlement fees (around 5%) to keep the loan under 80% LVR.

You may consider this option.
Stop living on your Aunts money and dump it directly into your savings account. Live only your part time work. Save 25% of the purchase price and then buy the house. You will be able to use the rent you will get as income in the assessment.

If you are looking for a higher loan, you will need less deposit, however, the mortgage insurers will look more closely at your situation.

Alternatively, find a way to earn more income either through finding a different job with more pay or hours or find a second job (you will need to have it for at least 6 months before applying for a loan).

Thanks for the great reply.

Yeah I do live off my part time work, and I do save the Aunt money, it's just not as impressive as I'd like it to be, but will keep at it for sure.

 

[Jess Peletier]

Don't forget that if you're buying an IP that you can also use rental income in your servicing. Often with first IP's the deposit is more of a problem than serviceability, especially if your other costs and debts are low.

 

[Redom]

Hmm i cant see this being allowed to be included as income for servicing purposes.

Are there legal ways to include it as income - i'm not sure, a savvy accountant may be able to help here. Maybe you could treat it as income and have it included in tax returns. If so, it may take a couple years tax returns before it can be used.

Also, it may be treated as foreign income and may need to be discounted from its original value for servicing (as it is exposed to exchange rate risk, etc).

Goes back to what others are saying - do you need this income to prove servicing? There may be alternative ways to get you to what you want without including this income.

Cheers,
Redom

 

[Radicals]

Don't forget that if you're buying an IP that you can also use rental income in your servicing. Often with first IP's the deposit is more of a problem than serviceability, especially if your other costs and debts are low.

I wasn't fully aware of this (but was always hoping it was the case!) So if I manage to find a CF+ IP then I would be set.

 

[Redom]

I wasn't fully aware of this (but was always hoping it was the case!) So if I manage to find a CF+ IP then I would be set.

You'd still need to be able to show that you can service your lifestyle (i.e. rent + about $1100 in other living expenses per month).

Also you'd need a very strong c/f+ property for the rental income to cover the mortgage cost that's assumed in the banks borrowing capacity calculators - the bank will assess the debt you take on with them at around 7-7.5% P&I repayments. They effectively include a buffer to ensure that you can meet repayments if rates increase. This generally means you'll need an 8.5%+ yield to have the rental income cover the debt repayments according to their calculators.

Cheers,
Redom

 

[Jess Peletier]

I wasn't fully aware of this (but was always hoping it was the case!) So if I manage to find a CF+ IP then I would be set.

Why don't you flick one of us an email with your details and we can run your numbers through some calculators?

At least then you'll know what to aim for with either savings or the IP's return (or both!)

It's hard to hit a target when you're not sure what it is.

 

[Colin Rice]

Might be worthwhile getting in touch with Rolf above who's a fellow Queenslander and seeing if he can help - if he can't, no one can.

Might have to hit him up some day

 

[C-mac]

Not a broker nor a banker bit the smartest thing to do in my mind is save the job $$$, live on the aunty $$$ until you hit 20-25% deposit and then get a mortgage. Others have suggested this too. That said, a better broker might put you in a period but/worth a lender that can help you out.

 

[Radicals]

Not a broker nor a banker bit the smartest thing to do in my mind is save the job $$$, live on the aunty $$$ until you hit 20-25% deposit and then get a mortgage. Others have suggested this too. That said, a better broker might put you in a period but/worth a lender that can help you out.

Yeah this is my current game plan, and well on my way to doing it in 6 months. The part time job is kind of new so I need to be there a few more months before the banks will recognise it as an income, which won't be a problem (it's a great job.)

I will probably get in touch with someone soon!