Young family starting out

[Motiv8]

Hi
I'd like some advice on starting out, we are a young family (just one child) and are looking at buying our first PPOR soon.

We have cash savings of around $28k which we have saved over the past few years, and have company shares that are valued today at around $37k with an interest free loan tied to the shares at around $20k. There are restrictions on selling the shares, I can only sell each lot after Ive had them for three years, unless I resign from my job.

The problem is our serviceability. What are our chances of getting a loan with my husband earning $550 per week after tax, and me only earning $240 per week after tax working part time? Im actually on maternity leave at the moment and if I returned to my job would earn $630 per week after tax working full time, but with child care costs, petrol etc..I am financially better off earning $240 per week part time in the evenings and having my husband look after my daughter thus cutting out child care costs.

I dont think our chances are good. We are in Melbourne, looking at the Altona Meadows area, around $300k.

Any opinions or advice? My parents are willing to help us out, however I dont think that they can do much about the serviceability issue. Also, my husband only started his job two weeks ago, how long does he have to work for before it is deemed that he is in a stable job, is it still six months?

 

[Kristine..]

Hi Motiv

Welcome to the Forum

You have raised a number of issues regarding eligibility and serviceability.

Regarding the Maternity Leave, how long before you return to work?

Apart from Family Allowance, are you receiving any income at the moment?

Has your husband changed from a similar job and has he had more than two jobs in the past three years?

Do you have any credit cards and if so what is the total credit limit of the cards?

What about your Credit history?

How many motor vehicles?

Any other current financial commitments which would continue after buying your home eg furniture repayments or car loans?

Just as a rough guide, your borrowing capacity once you return to work would probably be in the range from $188,000 - $260,000 depending on the lender and by that time let us assume Mr Motiv has been in the new job more than 2 months.

As your savings have accumulated over two years they may not qualify as ‘Genuine Savings’ which generally have to be accumulated over the six months prior to loan application. This indicates to the lender that you can live without the money and have the capacity to meet a repayment commitment.

So a 90/10 product would probably be available to you. This is a maximum of 90% LVR.

$267,000 purchase price plus Stamp Duties and allowance for costs and adjustments plus Lenders Mortgage Insurance would come to about $287,500 less your ($40,000 + loan $241,000) = shortfall $6,500 – gift from parents?

Lowering the purchase price affects the ratio of the loan but these figures could be jiggled about a bit either way. For example if you borrowed to eg $248,000 you could buy to $275,500 but your parents would have to help you out with about $8,500.

You may be able to take the loan as Interest Only which would enable you to add to the loan whenever possible but keep your committed repayment low in case of illness or other unforeseen circumstance.

For the purposes of this discussion sorry but I can’t specify a lender but let me say this would be one of the major banks. If I name a lender or product or mention an interest rate then by law I must provide a current Comparison Rate Schedule for that lender and that’s a bit complicated on an open forum.

Suffice to say that from the information you have provided in your post buying once you have returned to work is achievable to about $275,000.

Hope this information is helpful

Regards

Kristine

 

[knightm]

hi motiv8
kristines points are all very good

If you want the servicability from the horse's mouth, ring a broker, they are free, they can come to your home and get all your vitals and then give you an estimate from each of the lenders they deal with. Alternatively I think echoice will do it on the net. My wife and I have a new baby, and we are wrestling with servicability issues now too.

Have you though about cheaper areas?

 

[Motiv8]

Hi

Thanks for the advice Kristine, there is so much to think about and I am glad that I have asked the question now.

Im a little confused about what you said about genuine savings having to be saved over a period of 6 months prior to loan application. It would be impossible for someone to save $28k in six months. I always thought you had to show regular savings over a period of time, which is what we have been doing. We have been saving around $200 per week since Ive been on maternity leave, prior to that we were saving around $500 per week plus the wedding presents have helped our deposit too

As for other expenses, I have a credit card with a $3500 limit which I havent used in two years and want to close off ASAP and my husband owes $1000 which we are going to pay off prior to loan application then close the account. I think his credit card limit is about $3100.

We dont have any other liabilities, no car loans, furniture loans etc...(I come from a European family where if you dont have the cash, you dont buy).

My husband is working a similar job in a similar industry, and he held his prior job for 5 years. Does it matter that he left his last job and was out of work for 2 months? He wasnt on the dole during this time. While he was looking for work, I did some temporary work during the evenings just to get some income to live on while he was out of work.

At the start of the year I requested a credit history for both of us from BayCorp and we have a good credit history, nothing bad reported to BayCorp.

Ive just found out too that I can only sell one lot of my shares, because they are employee shares and there are selling restrictions. So I can only sell one lot which are worth around $10k (this is before capital gains tax is subtracted). So our deposit is going to only be the $28k cash plus the FHOG of $12k.

We are planning on saving another $5k before I return to work and before we apply for our loan.


Actually, I rang Aussie Home Loans on Friday to ask the same questions and the adviser told me that if I was to return to my old job working full time and considering our $28k plus some of our shares and the FHOG, we would be able to borrow up to $400k (which is ridiculous because of the high repayments).

Do people generally take out interest-only loans for their PPOR? What are the risks in doing so?

This is really starting to frustrate me. Im a person who has always been a hard saver and hard worker, never take out loans to buy goods, live within my means etc...and Im still going to have trouble with a mortgage application. I can get help from my parents with money, but I was hoping I would not have to.

Anyway thanks for all the advice, hope you can offer me more considering this new info I have provided

 

[Aceyducey]

Motiv8,

Your situation doesn't sound bad to me.

As Knightm suggested, consult personally with a good mortgage broker - perhaps one from this forum such as Rolf Schaeffer or Kristine.

It's easier to explore the options privately in person than via a forum.

I'd suggest you use a P&I (Principle & Interest) loan for your PPOR - that increases your equity growth & will result in the long run with you owning the property.

If you cannot afford your PPOR on a P&I loan I'd suggest that you are buying above your means & dangerously stretching yourself.

Cheers,

Aceyducey

 

[Rolf Latham]

Hiya

id agree, chase up Kristine, Medine Simmons, Rolf S, or PT Bear, all Melbourne based.

Once you go back to work I dont think you will have a any issue getting a 285 k 95 % lend with capitalised mortgage insurance, would be good if hubby had 6 mths up, BUT once of probation, with that sort of lend I reckon youd have a very good chance.

The Gen savings are ok with most LMI providers held for min 6 mths, I too would out you into the near 400 k mark in terms of service once you go back to work BUT, what can YOU afford to repay is actually more important.

ta

rolf (L)