Hi,
I agree with that kind of LVR ratio surely some broker will be able to help source a more conventional loan? even an 80% LVR should help?
However if you circumstances for whatever reason means you are unable to obtain such finance may I suggest you ensure;
1) The contract gives you full rights of possession so that;
a) You qualify for the FHOG under section 13.
b) You are deemed the owner of the property under section 26 of the Land Tax act - this way the vendor does not need to pay land tax and you as a PPOR get the discount too.
Now if this is a one off deal for the vendor - i.e. they are not in the business of providing vendor finance, then they may not be deemed to be a credit provider, however if they plan to do others, make sure their contract complies with the Credit Code.
However, the Credit Code makes good financial sense, so its worth checking the following points anyway.
c) Ensure the contract complies with the Uniform Consumer Credit Code (go to
www.creditcode.gov.au) to see what is required.
d) Since it is a loan for personal use (I assume) ensure the contract includes the appropriate "Things you must know" forms which make up the UCCC requirements.
e) Ensure the contract specifies what the benchmark interest rate will be - and how you will be notified when it changes
f) Ensure the contract clearly indicates what will occur in the case of default - if it is UCCC compliant then this is straight forward - but if it is a private arrangement then you should specify this process clearly - i.e. how many days to you have to fix up the problem etc.
g) Are there any penalties for paying lump sums, early payout, late payments, administration fees, account keeping fees, all the sorts of charges standard lenders have, see what you contract will have.
h) How will interest be calculated, will it be calculated daily compounded monthly?
i) How will you be informed of your balance - will you be issued statements?
j) What about water rates, council rates, insurance - how will these be paid?
k) repairs - who does this?
l) like standard lenders are you obligated to inform the vendor when the property is leased - when renovations are done - what other conditions must be abided by to ensure no default occurs.
m) what happens if you go bankrupt, or whatever?
l) What about income protection - have you consider this to cover your payments if your injured - what about life insurance to over the outstanding debt if the worst happens? (actually probably makes sense for any borrower)
All this should be discussed with your legal advisor - by the way - don't waste money with any solicitor - make sure you interview them and find out that they KNOW about vendor terms contracts. If they dont have the experience you're wasting your time and money with them.
Regards
Michael G
