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

[EstatePreneur]

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.

I'm back!
Yes, I'm back with this 1 year old thread again.
Gosh Alex, if I bought any property last year despite my circumstances, I would have been smiling all over the place now. Particularly after the recent 'n current boom in Brissie.

But surely I've learnt alot and better prepared this time.
Some update on my next move...
1. Talk to a mortgage broker and get a loan (most likely lodocs, the least nodocs)
2. Search and find the right property, I think I may have finally found something after months and months of research
Will do some inspections tomorrow on the weekend

I got some savings around $7k, business currently generating approx. $17k/annum. Parents said would help with 50% deposit (I know Alex wouldn't really agree on this one, but as some said, sometimes we need a helping hands, particularly when the help is there available for us, but I highly appreciate your advice Alex, don't worry ).

Ok, currently looking at $300,000 property, so after deposit, will be left with $150k mortgage to pay.

I'm still positive that I'll rent out at least 2 bedrooms of the 4 bedrooms property where I will in as well. Say $100/room, that makes approx. $12k/year which will be my additional income.

My total income per year would be roughly $30k gross, after expense etc, I'll be left with approx. $22k to service the $150,000 repayment.

Would this be feasible? Or am I too optimistic/over confident with this plan?
Meanwhile, no matter what happens, I'm going to do my first ever houses inspection tomorrow

 

[Peter_Tersteeg]

These days, with a 50% deposit, and a clear credit record, there are lenders who will require you to state what your income is, but they won't ask you to prove it - all at regular rates.

The main criteria from your perspective is making sure can afford the loan. With a 50% LVR the lender has no problem because there is almost no risk to them and they can recover their money at your expense if required.

 

[Rolf Schaefer]

My major concern is your serviceability.

From the information given it would assume that you can't afford any loan repayments however small the loan may be.

A Low Doc loan should not be abused to overcome real income/serviceability issues.

Whilst there are are brokers that don't care about these issues most brokers on this forum (I hope so at least) would not be able to help you.

 

[Sunfish]

Is the $15k you make from your biz your nett taxable? If so you should have already paid for your phone, a %age of your car, computers etc. My small biz doesn't have a high taxable either but 100% of my van and it's running costs, computers, phone, home office, LOC and credit card interest and other petty cash items, an occasional fill of my wife's car are all pre-tax items so if I were young and single I would believe I could service a modest loan but would need to go LODOC.

This is just a point that seems to have been missed. And if I could add a little fatherly advice: Don't feel pressured to do this for fear of missing out. (bad reason) Only do it if is simple good sense that fits your situation.

Fish.

 

[EstatePreneur]

These days, with a 50% deposit, and a clear credit record, there are lenders who will require you to state what your income is, but they won't ask you to prove it - all at regular rates.

The main criteria from your perspective is making sure can afford the loan. With a 50% LVR the lender has no problem because there is almost no risk to them and they can recover their money at your expense if required.

Yes, it's time to see a mortgage broker. I'm also going to see a mortgage manager at the local National bank. Hopefully the bank will want to lend me the other 50% of the property purchase price. If not then I'll have to go with a lodoc/nodoc loan.

Is the $15k you make from your biz your nett taxable? If so you should have already paid for your phone, a %age of your car, computers etc. My small biz doesn't have a high taxable either but 100% of my van and it's running costs, computers, phone, home office, LOC and credit card interest and other petty cash items, an occasional fill of my wife's car are all pre-tax items so if I were young and single I would believe I could service a modest loan but would need to go LODOC.

This is just a point that seems to have been missed. And if I could add a little fatherly advice: Don't feel pressured to do this for fear of missing out. (bad reason) Only do it if is simple good sense that fits your situation.

Fish.

Hi Sunfish, the $15k so far isn't taxable. But not sure with this end of financial year, as it's risen up more than that. That figure is from previous years.

Thank you for the great advice indeed! But I've put a lot of thought, rethink and rethink again that due my current circumstances, it's best to purchase my PPOR now (rent contract will end in a few months time, and the rent rate will surely go up again).

Sunfish, could you recommend a good mortgage broker in the Brissie area, particularly the one you've used in the past?

 

[voigtstr]

(snip)
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

Definitely do a monthly budget! (or fortnightly or weekly, whatever your pay period is) From a budgetting perspective its probably best to have the mortgage debited in the same cycle as your pays.

The first line in your budget each cycle should be your mortgage, cost your groceries, power bills, petrol, everything that comes out regulary.

I keep my budget on a spreadsheet with a couple of columns per month, any money left over the previous month gets carried across to the next month. Basically you have to meet your loan commitments first, then have groceries and petrol stick to your budgetted amounts, and if you have money left in surplus then could consider saving it towards musical instruments or other luxuries. Without maintaining a budget you'll just be hoping you can pay your bills.

 

[alexlee]

I'm back!
Yes, I'm back with this 1 year old thread again.
Gosh Alex, if I bought any property last year despite my circumstances, I would have been smiling all over the place now. Particularly after the recent 'n current boom in Brissie.

As I said before, buying even an appreciating property means squat if you can't make the payments. Given your figures last year I wasn't confidence any bank would lend you the money. More importantly (since bank reservations can be worked around) I wasn't confident YOU could make the payments. You wouldn't be smiling if you defaulted, rising market or no. I'm not say you would, and you are more than welcome to ignore my advice, but buying and keeping are very different things.

Personally, when I was on a $35k salary, my borrowing limit was $150k, and rent was $215pw on a $170k property.

Again, I would say your serviceability is on the low side. However, if you yourself are confident, by all means do it. I'm sure you can find a bank to lend you money. However, I would strongly suggest you do a detailed budget to see just how much you spend on things and how much you can cut back. If ANYTHING happens with the property (repairs, loss of rent, etc) you're going to be pushing the line.

As for having parents help you..... I personally wouldn't do it. But that's just me. I'm just one of those people who prepare for the worst, and I don't want to be in a worst case scenario when it involves parents and money.
Alex

 

[alexlee]

Hi Sunfish, the $15k so far isn't taxable. But not sure with this end of financial year, as it's risen up more than that. That figure is from previous years.

EP, why isn't the $15k taxable? Is it because you have expenses to offset it? If so are the expenses cash?
Alex

 

[jingo]

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.

Hi EstatePreneur,

As a fellow musician I can relate to your statement above about needing music to live!

I've been investing in property for a while now, and it has really helped to secure my financial position. I used to earn similar amounts to you, and understand how unreliable the income can sometimes be.

Keep saving, and invest as soon as you can afford to meet the re-payments. Property will help you to build a financially stable future, and enable you to pursue your musical endeavours!

I notice that there are a few muso's on this forum!! I also know a few musicians who invest in property. Some have even gone into the real estate industry!

Regards Jason.

 

[EstatePreneur]

Alexlee, voigtstr, I do do weekly/monthly budget, and I can tell you I'm very glad I've been doing it since 3 years ago. I can always go back to these records to check my current financial position, and I must say in terms of income generation, I still have to catch up, but in terms of expenses, I've been doing very3 well

Alex, yes the $15k wasn't taxable due to expenses to offset it, but I did start to pay a little amount of tax last year due to increase in income.

I've done some budgeting, and will have to work very hard once I buy the property (source of income: run own business from home full time, rent out 2 bedrooms at $110 each, and possibly extend the property/build another bedroom for faster return from bedrooms rent, and definitely will do part time after hour, and on the weekend as well).

Hehe ah Jingo/Jason, finally there's another fellow musician here who realise and agree how important music instruments are to our lives.
Saying that though, I'm auctioning most of my music possessions on ebay, mostly drum stuff, recording, etc, but I'll keep my guitars.
I definitely agree with you that through property, in the long term, I can enjoy playing and owning music instruments without having to sacrifice or worry about my finance. The only downside would be that by that time (probably in my 30's) I wouldn't look as cool as I'm now when playing my guitar, and the style would most likely be slow blues, jazz, country, very much different style from now, which is basically, metal and hard rock (I'm sure the only fans I have at that time will be just my wife ROCK ON!)


Ok guys, I have a few things I'd like to need your advice.

1. What would be the positives & negatives buying a property located in a busy road?
2. Also, for a first timer like myself, do you think it's a good idea to do cash unconditional contract or better to stick with the usual way, which is subject to finance approval?
3. Is home insurance compulsory (i.e. required by law for every property buyer)? The lady from NAB bank told me that I must have this, but it doesn't have to be through them. What sort of price range would this usually cost? I realise it's an ongoing cost.

I'm in the process of negotiating with the agent/vendor, and will get finance pre-approved from NAB very soon. If things go well, I have to let go all my music instruments (even my beloved fender and Ibanez guitars that have served me faithfully for long time whatta pity, but if it's worth it, then so be it)

 

[alexlee]

Ok guys, I have a few things I'd like to need your advice.

1. What would be the positives & negatives buying a property located in a busy road?
2. Also, for a first timer like myself, do you think it's a good idea to do cash unconditional contract or better to stick with the usual way, which is subject to finance approval?
3. Is home insurance compulsory (i.e. required by law for every property buyer)? The lady from NAB bank told me that I must have this, but it doesn't have to be through them. What sort of price range would this usually cost? I realise it's an ongoing cost.

1) Negatives: noise, more crime, more traffic. Pro: it should be cheaper than comparable properties in the same area.

2) Put it this way, say you go in with no conditions and the valuation comes in low. What would you do? Do you have an extra 10%, say, to put into the property (I've done that. Val came in 10% below the purchase price. I had to chip in an extra 10% in cash)? I would suggest putting in finance and satisfactory building inspection clauses.

3) Regardless of the law, do you really want to be without it? It's only a couple hundred a year. To put it another way, can you afford a repair bill for a couple thousand if someone breaks in, or there's a fire or whatever? Incidentally, if you plan to rent out rooms, will you need landlords insurance (that's around $250 - $300)? That would work if you sign an actual lease.
Alex

 

[JIT]

2) Put it this way, say you go in with no conditions and the valuation comes in low. What would you do? Do you have an extra 10%, say, to put into the property (I've done that. Val came in 10% below the purchase price. I had to chip in an extra 10% in cash)? I would suggest putting in finance and satisfactory building inspection clauses.

If the property in question goes to auction, which is usually the case (at least in Melbourne) for well located properties in the best suburbs, then you can't put clauses in anyway - so, you may need to get finance pre-approved, then get a valuation, then do the building inspection, then do the pest inspection, and then turn up to the auction and face the risk of all this being a complete waste of money and time, as an emotional owner-occupier drives up the bidding to well above the agent's quoted price and the vendor's reserve price.

As a beginner though, you may have no choice but to do this.

If the property gets passed in or is for private sale you would of course be in a better position.

Alternatively, in outer suburbs or other places or times where/when there is less demand for properties, you may be able to get away with putting these clauses in.

If you are more confident, experienced and do your research well, I think it is far better to try and do away with these clauses and slap a solid unconditional offer on the table to the vendor.

If you can do this, you might even be able to buy a great property before it goes to auction, and if you're lucky, before it even gets listed...

GSJ

ADD: If you really want to put clauses in, do 5 working days max., then ask for extensions if you need more time! Or, if you're real quick, do everything in the 3 day cool off period!

 

[jingo]

I definitely agree with you that through property, in the long term, I can enjoy playing and owning music instruments without having to sacrifice or worry about my finance. The only downside would be that by that time (probably in my 30's) I wouldn't look as cool as I'm now when playing my guitar, and the style would most likely be slow blues, jazz, country, very much different style from now, which is basically, metal and hard rock (I'm sure the only fans I have at that time will be just my wife ROCK ON!)

Hi Estate Preneur,

Don't let Mick Jagger from the Stones, Elton John, Billy Joel or any of the other 'old' rockers' see or hear what you've just written above!

I went to see Billy Joel last year when he came to Melb. I rekon he is better now than he was in his younger years!!

I know this is really off topic, but I couldn't resist!

Ejoy your gigging, oh, and don't forget to start building up your real estate empire!

Regards Jason.

 

[EstatePreneur]

Well, after reading your advice Alexlee and GSJ, here's what I'm gonna do:

1. use the clause subject to finance approval and pest/building inspection on the contract
2. get a home insurance
3. finance will be done in 7 days


Hehe, Jason, all those veterans don't sound familiar to me (just kidding)
I've really been thinking to let go all this luxury owning/buying and playing music instruments pretty soon, maybe for the next few years. I know things are gonna get really tough when the loan repayment duty starts to take place later. I'll maybe just keep one guitar.


Some update: property is listed at $350k, I placed my first offer $341, vendor refused on the same day. So on the next day, I increased my offer by $5,000 ($346k is my offer so far). Today vendor just come back with a counter offer $370k.

Today I got some info from other REA saying a similar property (better in landsize and 1 extra bedroom, and looks newer) just got sold for $360k. I passed this info to the REA, explaining the vendor over priced her property.
I have a feeling, the REA might be lying to me regarding the $370k counter offer.

I'm thinking to make a counter offer at $351k, and tell the REA that it would be my last/highest offer, and ask her to get back to me by tomorrow, otherwise I'd just proceed to buy the other property that I've been given a good price in the other suburb.

Oh Lord, is there really some ways to negotiate with this REA so I can get her to reveal the vendor's real asking price, and therefore the REA would lower the price? I mean the advertised price is $350k (well, it says offers above $350k). But I don't want to get over aggressive (i.e. by not upping my offer at all, I mean stay firm at $346k)

What's your take guys? What would you normally do if you're in my position now?

 

[jingo]

Today I got some info from other REA saying a similar property (better in landsize and 1 extra bedroom, and looks newer) just got sold for $360k. I passed this info to the REA, explaining the vendor over priced her property.
I have a feeling, the REA might be lying to me regarding the $370k counter offer.

I'm thinking to make a counter offer at $351k, and tell the REA that it would be my last/highest offer, and ask her to get back to me by tomorrow, otherwise I'd just proceed to buy the other property that I've been given a good price in the other suburb.

Oh Lord, is there really some ways to negotiate with this REA so I can get her to reveal the vendor's real asking price, and therefore the REA would lower the price? I mean the advertised price is $350k (well, it says offers above $350k). But I don't want to get over aggressive (i.e. by not upping my offer at all, I mean stay firm at $346k)

What's your take guys? What would you normally do if you're in my position now?

Hi EstatePreneur,

I can empathise with you. I am currently negotating a purchase at the moment in Melbourne. In a rising market it is very difficult for a prospective purchaser to tell how much a property is really worth.

I think you have done the right thing by speaking with another agent who has given you the details of a similar (if not better) property that sold for $360,000. Keep collecting recent sales information on similar properties and use these to your advantage when speaking with the Real Estate agent who has the listing of the property you would like to buy.

In many areas in Melbourne if a property is advertised at $350,000+ this would mean well in excess of this price. (Often up to 20% more.) I am not familiar with the Brisbane market, but would think that the vendor would be expecting more than $350,000. From what you have mentioned above the agent has given you a clue by mentioning the figure of $370,000. This doesn't mean the property is worth this, but is just the figure that the vendor has in mind.

As a prospective purchaser your job is to try and ascertain the property's current value. (Keep collecting evidence of recent sales, and even contact other real estate agents in the area pretending you are looking for a similar property to the one you are wanting to buy, and see what price they quote you).

From what you have described, I think you are negotiating well with the Real Estate Agent. You have used an example of a recent sale of a similar property to demonstrate that you have up to date knowledge of what is happening in the market. Work out the maximum you can, and are willing to pay for the property in question. If you think the vendor is being too unreasonable it may be time to move on and look for another property.

I missed out on a very good property recently because I refused to go a little higher. Since then other properties that have not been as good have sold for much higher amounts.

I don't want to see this happen again, and may need to pay a higher amount than I am really comfortable with for the property that I am currently negotiating on just to secure the deal.

I hope this helps a little, and I hope that you don't have to sell too much of your musical equipment!

Regards Jason.