Question for mortgage brokers (victoria)

[JohnMichael]

Hello somersoft

I have a question for the mortgage brokers out there. I understand you can't give personal advice over the internet, but I just wanted to check this is a possibility before I go to a MB / bank and get laughed at. I am wondering if the banks will lend me any money.

I am a man in his 30s who has been left an inheritance of around 260K with the wishes that the money be put into a property.

However my income for the last few years has been quite low as I was studying up till last year and in a relationship which ended. Then due to a few personal factors I have been unemployed for the better part of this year until starting my own business in September.

I undertook the NEIS program, studied the business course and now recieve an allowance from the government of $600ish a fortnight for the coming year to get my business off the ground. On top of this I projected my income (conservatively) of only around 20K the first year, 40-60K the second year.

If I understand correctly 100-200k interest-only might be about 5-10k a year, which should be serviceable with my income. And since I'm borrowing less than the deposit amount, should be seen quite favourably I would think? But I'm new to this and I wonder if the banks will see it that way.

So basically I'm wondering if the banks will lend me any money, or am I wasting my time?

(I also have a low cost lifestyle, about 70k in cash and no debt or children, if it's relevant)

 

[JohnMichael]

Also like to stress those income levels are only projections, I could make a lot more, or even a lot less. So that's why I'm a bit doubtful of the banks lending to an unproven small business with no track record yet.

 

[Peter_Tersteeg]

Financiers are legally required to verify that you have the income to afford the debt on an ongoing basis. The government grant is not considered to be income.

Projections are irrelevant.

Your deposit is great, but it's not income either and can't assist you in determining affordability.

To qualify for a loan as self employed you'll need to demonstrate your income via 2 years of trading history, usually via your personal and business tax returns.

Unfortunately you're not going to qualify for a loan on this basis.

 

[JohnMichael]

This is what I expected unfortunately.

Oh well I guess I'll just have shop around for something up to 260K, or else put it in something low risk like fixed interest until I can qualify for a loan.

Thank you very much for your reply. Saves me the effort of going into a bank and having them tell me the same thing

 

[tobe]

You might be eligible for a low doc loan, but there are still income verification requirements and minimum self employed period criteria.

For some lenders this is an accountants declaration and ABN registered 12 months.

Another alternative is to invest this money in listed property, or perhaps commercial property until such time as you are eligible to borrow for residential property.

 

[Peter_Tersteeg]

Unfortunately it's a conversation that comes up quite a bit.

Some people have huge deposits. The problem is once the money is spent, it's gone so can't be considered to be contributing to the affordability of the loan.

The government grant is there to help you start up your business, again it's not to help with a mortgage. I know from personal experience that starting a business can be a substantial drain on your cash flow. Starting a business is a great way to stay poor.

The good news is, that most of the wealthiest people I meet are self employed. If you can build a good business, you've got the opportunity to make the kind of money that a job won't provide.

 

[JohnMichael]

Ok so I've had another idea. Since I most likely won't qualify for a loan (will speak to a MB about this at some stage to make sure) I have been having a think of other methods to employ leverage.

Would I be able to buy something using the inheritance, then get a line of credit out secured to the home equity of what I've just bought? And then I would use those borrowed funds to invest in something else, in diversified shares for instance.

So if I was to buy something for 260k, would I then be able to take out around 200k or so as a line of credit?

I have been reading a bit, these forums and other investment sources, and it seems the main advantage of property is using leverage, so I'm trying to work out how to do that. I know much more about the share market than property, so that would be my preferred area to invest the borrowed funds in

 

[Redom]

Unfortunately you will still need to show that you can repay the LOC JohnMichael. The same qualifications as per above posts apply.

 

[albanga]

Is your new business venture going to be full time?
Could you possibly get PAYG employment part time? This would have many benefits for your cashflow and also give you serviceability but ofcourse I understand your business being priority.

 

[Jess Peletier]

Is your new business venture going to be full time?
Could you possibly get PAYG employment part time? This would have many benefits for your cashflow and also give you serviceability but ofcourse I understand your business being priority.

This is very true, and if you rented the house out that would help with servicing too. You don't have to earn all that much if you've got rent coming in (from a banks perspective)- but from an NCCP/risk management perspective you'd want to make sure you can afford a buffer in the event it's not tenanted for a period of time/repairs etc.

So if you were going to go down this path I would suggest keeping a decent chunk of your inheritance in cash, sitting in an offset.

But again, its probably not conducive to starting your own business, and if things got tight due to business expenses etc you'd have to have the discipline to leave the offset alone.

 

[JohnMichael]

I will be working in my business full time, but I most likely will have a part time job as well.

However it can only be a part time job of perhaps 25 hours a week, at least for the next year. The NEIS contract stipulates I am only allowed to work a certain amount, as the whole idea is that I'm available to work full time in my business.

Thanks for the responses everyone, the quest continues!

Now I just need to find IP areas that suit my price range and are also a solid investment. Might be difficult, I think. I will most likely start a little a thread / journal with my updates. These forums have been super useful already, and I would like to post about anything I discover anything that might be of use to others

 

[Jamie M]

Would I be able to buy something using the inheritance, then get a line of credit out secured to the home equity of what I've just bought? And then I would use those borrowed funds to invest in something else, in diversified shares for instance.

If you can demonstrate an ability to service the debt then you could borrow against it. Part time employment is fine too - it holds more weight than casual as its a set amount of hours so the income is consistent.

Cheers

Jamie