Vendor Financing - serviceability

[alexlee]

Hi, all,
I was wondering how vendor financing affects serviceability. Say you buy a property for $200k, $100k bank financed and $100k vendor financed. Assuming the vendor financing gets registered as a second mortgage, would this affect future serviceability?

In which case, what's the advantage of using vendor financing other than for that deal only or in the case of low valuation, etc?
Alex

 

[Lofty]

Hi Alex

It depends on where you are doing this transaction. If it was happening in NSW it is unlikely that the second mortgage would be a registered second mortgage. In NSW the transaction will normally be structured as an unregistered second mortgage, secured by a caveat.

In summary, if the second mortgage is registered (and in QLD it probably will be) it will be visible to the world and will affect your serviceability. If an unregistered second mortgage is used, it will still effect your serviceabilty because I know you would always declare all factors concerning your serviceabilty on all loan applications. That being said, an unregistered mortgage is not normally in the public domain.

Cheers, Paul

 

[Qlds007]

I hate to disagree with Paul but in my opinion a second mortgage is a monthly committment even if it is a a nil or reduced rate of interest.

It would certainly need to be declared as a monthly expenditure and would certain effect your serviceability.

 

[juzz]

Hi, all,
I was wondering how vendor financing affects serviceability. Say you buy a property for $200k, $100k bank financed and $100k vendor financed. Assuming the vendor financing gets registered as a second mortgage, would this affect future serviceability?

In which case, what's the advantage of using vendor financing other than for that deal only or in the case of low valuation, etc?
Alex

Alexlee,


In another financiers eyes, YES the take out/sale or re-finance of that property then it will effect servicability majorly.

The Capital or equity required if you borrow the money needs to be serviced as well, and then will no longer be considered capital/equity but DEBT.... it is still not "your" capital/equity but another form of debt needing servicing or payout at a later date..


But, There are some advantages of using Vendor financing if its available but usually its used as a negotiating tool for many different reasons.

Generally, most cases when I've seen Vendor financing come into play, one of the sides has some sort of problem or dilema...

Hope its clear.....


Juzz

 

[Lofty]

Hi Richard

You don't have to disagree mate because we agree ;-) I said:

"In summary, if the second mortgage is registered (and in QLD it probably will be) it will be visible to the world and will affect your serviceability. If an unregistered second mortgage is used, it will still effect your serviceabilty because I know you would always declare all factors concerning your serviceabilty on all loan applications."

Cheers, Paul