Will the bank lend me if I have 50% deposit?

[EstatePreneur]

I'm a real newbie in real estate so forgive me if I ask too basic question...

Ok, I run a very small business (self-employed) with low income (currently generating approximately gross $15,000/annum).
I'm about to buy my first ever property in Brisbane with price ranging from $250,000 to $300,000.

As the title says, I was wondering will I be able to get any loan from the bank if I'm able to provide 50% of the total house price deposit upfront.

Another question is, which is better to get a loan from a bank or from non-bank lender? Which bank/non-bank lender would you suggest is better/the best?

Thanks very much in advance for your kind help/advice/suggestion.
Cheers!

 

[Simon]

Assuming your credit reference has no defaults then I am quite confident you will get a loan with a 20% or 30% deposit. Using more is up to your plans and goals.

Ensure you speak to a reputable and capable broker.

Kind regards,

 

[Rolf Schaefer]

It looks like (based on your official income figures) that unfortunately you'll not qualify for a loan. For a loan that size you should have at least an income of about $45K (depending on circumstances).

Or can it be that you also get some cash income from other sorces? Otherwise, how would you service the loan?

Just my 5 cents.

 

[Simon]

Point is valid Rolf - I was referring to a NODOC which doesn't need any income.

However having said that it does need to be repaid and if you don't then a world of hurt descends.

Your advice, as usual, is far safer.

Cheers,

 

[EstatePreneur]

It looks like (based on your official income figures) that unfortunately you'll not qualify for a loan. For a loan that size you should have at least an income of about $45K (depending on circumstances).

Or can it be that you also get some cash income from other sorces? Otherwise, how would you service the loan?

Just my 5 cents.

Hi Rolf,
I was also thinking that I may not qualify for a loan from the bank.
But do you think the bank will consider my 50% cash deposit upfront of the house purchase price and somehow qualify me for a loan?

My friend and his wife also had low income when they first bought their first home, and they told me that they could get a (LODOC??) loan from a non-bank lender. They said the process is much easier compared to getting a loan from the bank.

Now, I'm getting pretty confused, what's the difference between Lodoc and Nodoc loan?
And is there any significant advantages if I borrowed from the bank compared to borrowing from non-bank lender?

Thanks again.

 

[Simon]

A lodoc needs you to "declare" an income. Some brokers will encourage you to declare a high amount but this is fraudulent.

A nodoc needs no such declaration of an amount. So you just state that you can afford the repayments.

So in your situation you need a NODOC but you also need to understand that you must repay the lender about (using a $300K home for this example) $206pw.

If you do not meet these repayments you will get into strife. Renting out rooms or other stategies will help you here.

Does this answer your questions?

Cheers,

 

[redwing]

Some NODOC Loans are also currently under scrutiny by the ATO aren't they..?

You cant tell the ATO one thing and the bank another nowadays

 

[Simon]

Some NODOC Loans are also currently under scrutiny by the ATO aren't they..?

You cant tell the ATO one thing and the bank another nowadays

That would be LODOCS mate for the very reason above. Where your loan application says you earn $100K yet your tax return says $40K then obviously you are defrauding someone.

I have had enquiries from potential clients claiming they really make $125K in their concreting business then tell me how they get rent assistance etc cos they only declare $19K. I find it very hard to reconcile in my mind as I am sure you would.

With the NODOC there are no income levels quoted in the loan app at all so this is not an issue.

Make sense?

 

[Rolf Schaefer]

EstatePreneur, in your case you could of course get a NoDoc loan (you don't have to declare your income and also don't have to declare your assets and liabilities). There are quite a few lenders out there that'll do NODOC loans at a rate of around the 7% mark variable. However, the main question is: Where do you get the income from to service the loan?

 

[Qlds007]

Hi EstatePreneur

Most of the points have been raised on this subject however as Rolf and Simon have stated NODOC lending means that you are not required to declare either your income or your assets and therefore dont run the gauntlet of getting caught in having to make up and income to declare on an application.


Interest rates are just as competitive as with a full doc standard variable rate loan and so they should be as the risk in equity terms to the lender is reduced. Many Nodoc lenders offer a further incentive that they reduce the interest rate the longer you stay with them.

Final word of warning just because you can get the loan ensure that you can afford to pay it back.

 

[kathryn d]

If the LODOC and NODOC loans are close in interest rate, are the close to full exclosure rates as well? If so,why wouldn't everyone use the NODOC .
With NODOC loans do you have to have more of a deposit ?

 

[Simon]

If the LODOC and NODOC loans are close in interest rate, are the close to full exclosure rates as well? If so,why wouldn't everyone use the NODOC .
With NODOC loans do you have to have more of a deposit ?

Good question. Short answer is that a NODOC will go to a max of 70% wheras a LODOC will go up to 80% LVR.

So with one you need a 30% deposit and the other a 20% deposit.

Cheers,

 

[peaches]

The other reason Kathryn, is that for conforming lenders LMI applies above 60% LVR and max's out at 80%LVR on low docs - while max No docs is 70% LVR - some lenders absorb the cost of this LMI - but it means your application is subject to close LMI scrutiny. This also means that the security has to be VERY acceptable - regional areas are difficult and non standard securities can be a trial. No docs is usually investment only.

Adelaide Bank offer a no LMI low docs deal up to 76% - at a higher rate and the conditions are restricted.

And I agree entirely with the other warnings - if you tell porkies in order to get the loan - that's fraud -and people go to gaol for fraud!! You better make absolutely certain that nothing will go wrong with your loan.

 

[Rolf Schaefer]

80% LVR NoDoc loans are availabale at an interest rate of around 7.2%.

 

[pulse]

EstatePreneur, basically and lender asseses two things prior to loan approval:

1. Loan to value ratio (LVR). this needs to be low enough so that is you default, they can sell your house and be assured of getting their money.
Your 50% ensures that you easily satisfy this criterion.

2. Your ability to service the loan. This depends on you income, including and rent and tax benefits from negative gearing.

To be honest, on your income I'm not even sure how you live, let alone save half the value of a property?
If you are not declaring income to the ATO, then I'll leave you to it.

Good Luck
Cheers Pulse

 

[alexlee]

Ok, I run a very small business (self-employed) with low income (currently generating approximately gross $15,000/annum).
I'm about to buy my first ever property in Brisbane with price ranging from $250,000 to $300,000.

EstatePreneur, can you please explain how you intend to service the loan? Say you buy a place for $250k. You borrow 50% and get a 6.5% Interest only loan. That's payments of about $8k a year

If you're living in it yourself, that's something like 65%+ of your net income. If you rent it, you'd have to pay rent.

I'm interested in how the numbers work here.
Alex

 

[EstatePreneur]

how to service a loan

EstatePreneur, basically and lender asseses two things prior to loan approval:

1. Loan to value ratio (LVR). this needs to be low enough so that is you default, they can sell your house and be assured of getting their money.
Your 50% ensures that you easily satisfy this criterion.

2. Your ability to service the loan. This depends on you income, including and rent and tax benefits from negative gearing.

To be honest, on your income I'm not even sure how you live, let alone save half the value of a property?
If you are not declaring income to the ATO, then I'll leave you to it.

Good Luck
Cheers Pulse

Ah I finally know what LVR means!
So it's basically the ratio of the value of the property and the loan that we get from the bank, and this is for the bank to cover themselves

EstatePreneur, can you please explain how you intend to service the loan? Say you buy a place for $250k. You borrow 50% and get a 6.5% Interest only loan. That's payments of about $8k a year

If you're living in it yourself, that's something like 65%+ of your net income. If you rent it, you'd have to pay rent.

I'm interested in how the numbers work here.
Alex

Hi Alex, thanks very much for asking that question

Ok I'm not very good at this accounting thing, but I'll try and keep learning how to do it more properly (I've got many replies from the people on this forum about how the heck am I going to service the loan, so I think I'll have to sit down and do some serious budgetting).

Ok, now about servicing the loan...
I know that I have a very very low income, and it's really been worrying and discouraging myself. I've just got a part time job which is able to generate around $250+ gross income per week.

In terms of income, I now have 2 sources, one from my home small business generating average $15,000/year and $12,000 from this new part time job, giving me a total of $27,000/year gross income (gees that still looks pretty little?! )

But again, when I have purchased the house later with 3 bedrooms and rent out the other 2 bedrooms at $90, I'll have a 3rd source of income averaging roughly $9000 / year.

So it all comes to $36,000 annual gross income.
My total average expenditure is roughly $600/month, so that's $7,200 annual gross expenses.
So generally speaking, I'd have $28,800 to service the loan.
What would you think pls?
I know I didn't include tax payment, luxury stuff (mainly musical instruments as a huge fans of playing music with guitar, drum, bass, keyboard )

Oh yeah, thank you very much Pulse for your reply, and by the way, I have always declared my income to the ATO.

 

[Simon]

If you are renting rooms at that level you can probably make it work.

If you don't then you need to take responsibility. You may lose money if the property is repossesed.

Think hard over it. If you are confident you can manage then see a broker. Expect to pay just over 7% for this style of lending. Anymore and you have the wrong broker.

All the very best mate,

 

[alexlee]

Hi, EP,
You have to include tax. That's a very big chunk of your income. Your income is nowhere NEAR $28,800 since you have to pay tax, pay interest (which will be around $15k on a $250k loan interest only).

Your own budget just says whether you can ACTUALLY service the loan. Whether the BANK thinks you can service the loan is a different issue. Even after you decide you can service the loan, talk to a mortgage broker.

Can you detail your breakdown of your $600pm expenses? What have you included / not included? If that figure is correct you should be saving at least a couple of thousand a year. If you’re not, you’re excluding something. As I’m sure you’ll read in other posts and books, those ‘luxuries’ are the things that kill your budget.

How much cash savings do you have at the moment?

My own view: I think it’s too early for you to consider buying property. The market is flat, and your income situation is risky. You either have a big deposit (as others mentioned nodocs have low LVRs) or need more income.

My suggestion is to read all of Jan Somer’s and Robert Kiyosaki’s books. Learn how the numbers work, and understand your own financial situation. You do NOT want to have a mortgage and realize you can’t pay it that month because you just spent it on a new set of drums. Buying property isn’t as easy as it looks.
Alex

 

[EstatePreneur]

If you are renting rooms at that level you can probably make it work.

If you don't then you need to take responsibility. You may lose money if the property is repossesed.

Think hard over it. If you are confident you can manage then see a broker. Expect to pay just over 7% for this style of lending. Anymore and you have the wrong broker.

All the very best mate,

Thanks for the feedback Simon

Hi, EP,
You have to include tax. That's a very big chunk of your income. Your income is nowhere NEAR $28,800 since you have to pay tax, pay interest (which will be around $15k on a $250k loan interest only).

Your own budget just says whether you can ACTUALLY service the loan. Whether the BANK thinks you can service the loan is a different issue. Even after you decide you can service the loan, talk to a mortgage broker.

Can you detail your breakdown of your $600pm expenses? What have you included / not included? If that figure is correct you should be saving at least a couple of thousand a year. If you’re not, you’re excluding something. As I’m sure you’ll read in other posts and books, those ‘luxuries’ are the things that kill your budget.

How much cash savings do you have at the moment?

My own view: I think it’s too early for you to consider buying property. The market is flat, and your income situation is risky. You either have a big deposit (as others mentioned nodocs have low LVRs) or need more income.

My suggestion is to read all of Jan Somer’s and Robert Kiyosaki’s books. Learn how the numbers work, and understand your own financial situation. You do NOT want to have a mortgage and realize you can’t pay it that month because you just spent it on a new set of drums. Buying property isn’t as easy as it looks.
Alex

Hi Alex, thank you very much for your always valuable advice and feedback.
That $600 average expenditure was from last year. My expense has grown slightly higher now (the land lord has just increased the rent again).

My weekly expense breakdown:
$90 Rent
$60 Food and daily consumption
$10 Fuels
$10 Phone and Electricity

I got roughly $1,500 in my savings account.

A big deposit approach is doable since as I mentioned in my other posts that I have my parents to back me up.
The other thing is to raise my income, I work two jobs now, running my own business and doing a part time job. So I guess I'd better focus on how to make my business more profitable/more productive.

The other part time job is only temporary, I do it because I feel it helps me to build my mental/characters/communication skills/customers skills, and I also enjoy doing it (unlike my own business which is a one man show, I know I've to leverage other people's skills/time/expertise in order to grow my business and to succeed faster and more efficiently).

Ah the Kiyosaki's books, I've finished reading the Rich Dad Poor Dad and the Cashflow Quadrant. I've just finished reading Anita Bell's book (Your Mortgage and how to pay it off in 5 years).
I'll buy Jan Somer's book once I finish reading the other books, I've got heaps of books to read (Dale Carnegie, Anthony Robbins, Napoleon Hill, Brian Tracy, John Maxwell, and heaps more, but mostly are phsychology, Christianity/spiritual, leadership, self-help kind of books).

I do admit that I'm very easily tempted to buy musical instruments from time to time (always from Ebay )
I have roughly $3000 worth of music instruments and equipments, I don't think I can live my life without music and the instruments too

Maybe you're right Alex, that I'm not in a good position (both financially and mentally) to get into a mortgage and buy a house at the moment.
I do discuss my circumstances with my parents from time to time over the phone, they always ask how's the market going here in Brisbane.

Well, meanwhile, I think I'd better keep saving some more money from my business and part time, and also keep learning property investment as per your advice.

Thanks again Alex.