refinancing out of vendor finance

[silverx]

hi
im looking at a vendor finance property at the moment and found one that i like. however i work out the interest rate from the weekly instalment to be 7.5% pa

i dont mind paying that extra for 3-4 years (saving for 20% deposit) but im just wondering how would i go and refinance the loan with bank (of course at cheaper interest) in the future.

i read online that we have to be able to refinance within a timeframe or else we would lose the deposit, is that correct?

say i can save 20% deposit in that 2-3 years (within timeframe) what are the risks that the bank wouldnt lend it to me because its a vendor finance property?

also having made the repayments for 2-3 years, do i refinance the total loan amount at that time or the original contract price? i know there wont be much difference in principal loan having only paid it for 2 years but just want to know which value the bank will take. if they can get the valuation of the property at that time that would be better

 

[Aaron_C]

if they can get the valuation of the property at that time that would be better

That is what they would use - the valuation at that date.

 

[Peter_Tersteeg]

There's a few potential challenges in this situation.

The first being obvious. What happens if the value of the property does not increase over the allocated time and you don't have the cash to make up the difference? Given the vendor finance component you may find it difficult to get a loan of more than 80% either now or in the future.

The second is that many lenders won't refinance loans with private lenders. These lenders tend to be those who are fully securetised. If you can get the deal done for the purchase with a lender and fully disclose what you're doing, then you should be fine to increase the loan latter (assuming equity).

I'd suggest you should fully disclose to the primary lender what's happening. If you don't it'll only make life difficult down the track.

 

[Rolf Latham]

refi out of VF and its varieties arent much fun

Generally, if you need an LVR > 80 % you will be struggling.

Even large scale VF folks like Meriton, whose balanc sheet is likley better than 70 % of australian lenders is frowned upon.

ta
rolf

 

[silverx]

if i do have 20% deposit after 2-3 years, will that be fine with all the lenders? or VF is just something that they frown upon?

i dont really understand, if they value the property at xxx, and i can afford the loan, the loan balance on VF is less than 80% of current value (assuming it increase after certain years) why do they make it difficult?

 

[silverx]

There's a few potential challenges in this situation.

The first being obvious. What happens if the value of the property does not increase over the allocated time and you don't have the cash to make up the difference? Given the vendor finance component you may find it difficult to get a loan of more than 80% either now or in the future.

The second is that many lenders won't refinance loans with private lenders. These lenders tend to be those who are fully securetised. If you can get the deal done for the purchase with a lender and fully disclose what you're doing, then you should be fine to increase the loan latter (assuming equity).

I'd suggest you should fully disclose to the primary lender what's happening. If you don't it'll only make life difficult down the track.

i am also trying to save up money, assuming the price doesnt go up but i am saving up 20% in that period of time.

the way i am taking this is basically getting into no deposit home loan while saving up the 20% and buying at current low value in properties

had i waited for another 3 years to accumulate the 20% deposit, the price might have gone up again (or going down nobody knows) but this deal is well priced and well within my affordability therefore i would like to secure it

 

[Rolf Latham]

if i do have 20% deposit after 2-3 years, will that be fine with all the lenders? or VF is just something that they frown upon?

i dont really understand, if they value the property at xxx, and i can afford the loan, the loan balance on VF is less than 80% of current value (assuming it increase after certain years) why do they make it difficult?

traditionally, refis in general have a greater risk of fallover than a purchase

Add in the sometimes creative VF and allied complications and som lenders simply dont want to know.

The small volume of loans, vs the risk of fallover is to high for many to consider

t
arolf

 

[tobe]

if i do have 20% deposit after 2-3 years, will that be fine with all the lenders? or VF is just something that they frown upon?

i dont really understand, if they value the property at xxx, and i can afford the loan, the loan balance on VF is less than 80% of current value (assuming it increase after certain years) why do they make it difficult?

Its not just a simple matter of property = x im afraid. A lot of lenders specifically exclude refinancing solicitors and VF loans, and thats that. they probably each have diferent reasons why, but they dont need to publish these. One reason is probably because they cant confirm conduct on the existing facility, its more open to fraud, stuff like that. it might also just be a case of big lenders trying to make it harder for tiny lenders and alternative finance to survive.

There is a Vendor Finance specialist member here you should contact. Lofty. He will have a great deal of information about this sort of stuff, most importantly what to look out for in the contract etc.

 

[Peter_Tersteeg]

if i do have 20% deposit after 2-3 years, will that be fine with all the lenders? or VF is just something that they frown upon?

i dont really understand, if they value the property at xxx, and i can afford the loan, the loan balance on VF is less than 80% of current value (assuming it increase after certain years) why do they make it difficult?

Like I said, some lenders simply won't consider a refinance from a private lender, regardless of LVR. We're currently working on one of these where the LVR is 60%. A number of lenders we discussed the scenario with said they simply can't do it.

There's a few other challenges in the deal, but we do have interest from some lenders at over 8%. Sounds a lot but it's far less than what the borrower is currently paying. Give it 12 months and the borrower should then be able to refinance again to something around 6%.

If you're having trouble saving the 20% deposit, how much have been saved to this point? It's no hard to get a 90% or 95% loan.

 

[silverx]

Like I said, some lenders simply won't consider a refinance from a private lender, regardless of LVR. We're currently working on one of these where the LVR is 60%. A number of lenders we discussed the scenario with said they simply can't do it.

There's a few other challenges in the deal, but we do have interest from some lenders at over 8%. Sounds a lot but it's far less than what the borrower is currently paying. Give it 12 months and the borrower should then be able to refinance again to something around 6%.

If you're having trouble saving the 20% deposit, how much have been saved to this point? It's no hard to get a 90% or 95% loan.

im just paying off all my loans at the moment, had around 40k loan in mid 2010 after renovation etc to my other place which stands around 9k at the moment. so it will take me around 2-3 years to get 20% on 300++k properties at the rate i am going. so i have no deposit, 9k plus in the loan account its going to be pretty tough to pass lmi i assume thats why i thought vf will be perfect but didnt know it would be troublesome in the future to refinance it