Question re equity in parent's ppor

Hi all,

This is a question for the mortgage brokers. My parent's ppor is worth about 900k give or take. The loan is around the 550k mark, with one of the big 4's.

I'm new to the property investing thing and currently only have 2 ips. My parents have agreed to let me use the equity in their house to let me continue building my portfolio.

Here's the problem, they are self employed and their situation is a bit complex so they won't be able to service a top up to extract the equity and lend to me.

Is there a way around this, i.e. get a cash out? I understand that it's possible to use their property as a guarantee security, but using this method, am i able to purchase a few properties or just restricted to one? My concern is how lenient their lender would be for placing additional mortgage caveats against the title etc, and any further potential issues if I need to extract equity from these ips down the track.

Any advice, suggestions would be greatly appreciated.
 
There are a couple of lenders that will allow your parents to give a family guarantee using the equity in their home. Your parents would not be required to demonstrate serviceability as long as your parents LVR stays below 80%.

In at least one case, your parents can keep their existing loan with their existing lender, so they wouldn't have to refinance either. Their existing lender would need to agree to a second mortgage on your parents property though.

The main catch is that some of the lenders who are this flexible do tend to be a little conservative in their affordability calculations. This probably isn't a show stopper but more detailed analysis would be required to get some parameters in place around what can be done.
 
As a guarantor loan, the guarantor bank will most likely limit you to just one IP. You can get away with more than one guarantee if there is more than one sibling, and you can sometimes squeeze an IP as well as a PPOR, but the chances of multiple IPs are slim.
Further, many lenders wont consider a guarantor loan when its parents only property and or their income isnt great, such as your case. There are a couple of exceptions to this though.

I havent had any trouble getting consent for the 2nd mortgage from the 1st, as long as their LVR requirements are met, ie, the guarantee amount and the parents loan amount equals 80% of the valuation of the property.

The issue is the timing, the request has to be sealed in blood, delivered under a blue moon to the depths of a city office, and then stamped by multiple bank staff and solicitors before consent is given. Allow at least 2 weeks.
 
CBA no problems taking 2nd mortgage over another big4. Guarantors are pretty hassle free in terms of not required to seek specific legal advise although its recommended.

LVR <80%

Also shouldn't have problems with more then 1 property long as the LVR is <80% and you can service the debt.

If it's your parents PPOR property that's being used for security they will will want to know that your parents are working, proof of this is preferred but not always a must.

If they already bank with CBA the process would be pretty straight forward.

ALWAYS allow more time if there is a second mortgage involved, for some reason or another there is a delay... you would be dealing with 2 banks instead of 1.
 
Hi Brady, Happy New Year.
So to clarify, CBA are going to get (or would prefer) proof of income for the guarantors, but arent going to run a serviceability calc on the current debt and the guarantee amount? Perhaps I have been avoiding CBA guarantees unnecessarily?
 
My concern is how lenient their lender would be for placing additional mortgage caveats against the title etc, and any further potential issues if I need to extract equity from these ips down the track.

Any advice, suggestions would be greatly appreciated.

As others have said, guarantor loans are useful here. Its becoming more and more common, particularly in the FHO market.

Generally its ok to get a second mortgage on the title. Doing some quick math, your parents have around $170k in useable equity there. This will cover your 20% deposit + costs - so your purchase price without having to contribute own funds is about 700k.

Lenders will want basic info from your parents - mainly to see that it wont cause financial hardship if called upon.

The majors are pretty good in this space - personally like ANZ for guarantor loans.

Cheers,
Redom
 
Thanks for the responses guys, some really helpful information there.

The plan was to purchase maybe 2 ips at about 300-350k each, given the amount of equity available. Sounds like this will be tough though so might just have to do the 1 only.
 
Hi Brady, Happy New Year.
So to clarify, CBA are going to get (or would prefer) proof of income for the guarantors, but arent going to run a serviceability calc on the current debt and the guarantee amount? Perhaps I have been avoiding CBA guarantees unnecessarily?

Happy New Year also, back on board after 4 weeks holidays... Not easy :)

I have never shown calculations of the existing debt. I've made comments that they could afford the guaranteed amount and existing but never gone to the length of showing and service cal. In some cases haven't even shown payslip just confirmed that they're working, strong app so wasn't requested.

My understanding that the only 'required' document is a statement of the existing debt to know what equity etc. But like always credit officers can/do request further documents to strengthen the application if they don't see the applicant or guarantors being strong.

Remembering the guarantors are only security guarantors not servicing guarantor, so if they can pay the debt shouldn't be a big factor. But obviously if they can well that is going to strengthen the app.
 
I think Westpac and St George limit the guarantees to 1 per borrower?

I think the OP is talking about getting a cash out loan against the parents property rather than just using the property as additional security? This may be a bit tricky.
 
They could look at 70% LVR low doc at good rates and split into 2 loans one for current amount and one for the amount you will effectively be lending you. Tobe may be able to assist with this.
 
I think Westpac and St George limit the guarantees to 1 per borrower?

I think the OP is talking about getting a cash out loan against the parents property rather than just using the property as additional security? This may be a bit tricky.

I think OPs alright with guarantor long as the banks are. And wants to make sure can do more then one if possible.

Is there a way around this, i.e. get a cash out? I understand that it's possible to use their property as a guarantee security, but using this method, am i able to purchase a few properties or just restricted to one? My concern is how lenient their lender would be for placing additional mortgage caveats against the title etc, and any further potential issues if I need to extract equity from these ips down the track.

Any advice, suggestions would be greatly appreciated.

I've had one parent use same property for both children. One was IP and other IP. And also for the one that purchased an IP another guarantor was given to the same child to purchase another IP - but this time the security was cash as equity was used up. (CBA)
 
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