Settlement / Purchase costs

Discussion in 'Property Finance' started by Kookie7, 11th Nov, 2013.

  1. Kookie7

    Kookie7 Member

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    Hi all,

    I'm looking at trying to buy my second I.P (thanks to the wonderful help of you magnificent forum members). I have a question on the acquisition of funds for settlement costs (such as stamp duty, conveyancing fees etc).

    I plan on taking a new loan at 95% LVR and have enough funds for the 5% deposit. I have access to some funds to cover the settlement costs but would prefer to borrow rather than use savings to cover these. As borrowing these funds would push the loan above 95% LVR, borrowing directly from the sale loan isn't an option.

    There isn't any significant equity in my first investment property to consider that as an option either. I've spoken to my lender who said that for the loan to be approved at 95% LVR I'll have to bite the bullet and pay the costs or take out a personal loan for the funds required (doesn't sound like a great option due to the 11%+ interest on personal loans).

    My questions is what do you do in this situation, do you just have to bite the bullet and pay the costs out of pocket or is there some other option to have a loan with 95% LVR + settlement costs?

    Thank you in advance for your time.
     
  2. Peter_Tersteeg

    Peter_Tersteeg Finance broker/strategist

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    Most lenders won't allow you to take a personal loan for additional funds. There are exceptions, but it's not a path I'd want to rely on. Most people simply bite the bullet and fund it out of their own pocket.

    You might also be able to borrow the money from family and friends.

    Keep in mind that lenders will still want you to meet the 5% genuine savings requirement (you've got to save 5% of the property value yourself). This can be achieved by holding the 5% in your account for 3+ months. Lenders will also recognize 10% equity in another property as genuine savings if you can show them 3-6 months of good conduct on the loan history. They will probably do a desktop valuation on the other property.
     
  3. Qlds007

    Qlds007 Broker,full time investor

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    Without knowing all of your details or the purchase price of the next IP property it is difficult to comment.

    There are however a couple of options where you may get to borrow the full amount and also get to keep your current savings.
     
  4. Colin Rice

    Colin Rice Perth Mortgage Broker

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    As PT Bear said most will bite the bullet and pay the costs out of pocket assuming they have genuine savings in place.

    As Qlds007 stated there are other options but it is a BIG stretch imo but can work in the right circumstances.

    BTW some lenders will waive the 5% genuine savings in lieu of rental payments via a REA evidenced over 12 months+.
     
  5. D.T.

    D.T. Property Lookerafterer

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    Do the same for PPOR mortgage payments? :p
     
  6. Terry_w

    Terry_w Member

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    A way around having to use savings is to borrow under a private loan agreement from a family membert. Later refinance these costs with a bank loan. = 105% deductible if done properly.
     
  7. Aaron_C

    Aaron_C Finance Broker

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    If you own a PPOR then gen savings is a non issue.
     
  8. Aaron_C

    Aaron_C Finance Broker

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    The Adelaide bank product will allow you to use a credit card (at home loan rates) to pay for stamp duty / legals but max base LVR for an IP is 90%.
     
  9. RetireRich101

    RetireRich101 Member

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    when lvr is above 80% will incur lmi each time you topup or refinancing?
     
  10. Aaron_C

    Aaron_C Finance Broker

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    yes but if you have already paid lmi you will get a credit for it (minimum LMI charge of $600 though).
     
  11. Peter_Tersteeg

    Peter_Tersteeg Finance broker/strategist

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    As my post above mentioned, some lenders will still need you to demonstrate 10% equity in another property. This could be your PPOR or an IP.
     
  12. Brady

    Brady Big 4 Banker

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    CBA will do it with just 3 months+ of satisfactory rental payments