Can I Borrow More than 550k ?

Looking4Bargians on 11/07/2016 - 10:42

Hey Guys
I know i should be contacting Home loan Broker or Agent to get proper advice or clarification, but just want to see if my fellow oz-bargainers can provide me any good advice.

I am living in Owner occupied property which i bought 3 year ago. Currently 27 years loan still pending for another $300K.
Checked the valuation of the house last week and got $500K if i go with 80% LVR from CBA. it means i still can get $100k as part of my equity. ( $500k - %80 = $400K - $300K = $100K)

Now i want to use that equity for buying a new property and wants to move to new property as owner occupied and the old will be converted in IP automatically.

Currently paying %4.31 with NAB. Looking to move to CBA with %4.00 for OCP and %4.2 for IP all other offset and extra features. ( not sure yet, still searching for better deal)

My question is , to buy new property will cost me $700k. As i have $100k equity and another $40K cash and $25K for stamp duty ( no wavier as it will be second property) = $140k + 25K

Total new loan will be $560K ($700 -$140K) OCP and existing $400K IP.

Total income before tax for both of us = $125K per year. ( not earning too much)
2 small kids dependent
Living in VIC
%35 pm of salary goes to currently mortgage but can reduce by changing to interest only and put more into new loan for Owner occupied Property.
%45 pm of salary goes for all other expenses
%20 pm of salary try to save every month which goes to offset account.

Current house will be up for rent (1700 Per month) but not until we move out to new property. will that future income be covered as income to consider before applying for loan?

so how much i can borrow in both yes or no case ?

Thanks for help guys in advance.

Financial

Comments

      • tomleonhart on 11/07/2016 - 11:54

        Actually I read your comment again. I don't think you can afford it. Here's how my calculation work:

        500k security 1 + 700k security 2 = 1.2 mil security
        300k loan 1 + 700k loan 2 = 1 mil loan - 40k deposit = 960k

        You can't really afford 960k loan with 2 kids earning total income 125k.

        • Looking4Bargians on 11/07/2016 - 11:56

          But there will be rental income as well for $1700 per month

        • tomleonhart on 11/07/2016 - 11:59

          @ozyboy: Yeah I put in the rental income as well, the serviceability calculator doesn't show a pass.

        • Looking4Bargians on 11/07/2016 - 12:00

          @tomleonhart: so do i need more cash in hand or increase the annual income to achieve it ?

        • tomleonhart on 11/07/2016 - 12:03

          @ozyboy: You need to reduce the loan size, or increase income. Or better: BOTH!

        • Looking4Bargians on 11/07/2016 - 12:04

          @tomleonhart: reducing the new loan to $475k or $ 500K would help ?

  • pais on 11/07/2016 - 11:50
    +3

    It's a bit unclear, but it sounds like you're looking to borrow (in total) $960,000 with a combined family income of 125k.

    Have you looked at other investment vehicles? Houses are seen as the 'easy' investment in Aus… But seriously, you're going to be leveraged to the hilt.

    • Looking4Bargians on 11/07/2016 - 11:57

      what about the rental income which will be added ?

      • pais on 11/07/2016 - 12:08
        +1

        Add some instability into the mix. If you assume positive growth in the housing market, stable interest rates and a steady $1,700 rental income with no unexpected hiccups in your family (e.g. loss of job, large unseen expense like your car imploding), you're probably golden.

        But 30 years is a long time, so you're going to see instability around your interest rate, income situation (jobs and rental income) and unforeseen expenses (oops, here's kid number three). Housing affordability is going to be at the forefront of the national debate in the coming years - the reality is that growth is either going to slow or potentially lock an entire generation out of the market - so you can't be completely reliant on things like CGT discount or negative gearing in your assumptions. And, assuming no government action, you're still beholden to the market movement (i.e. the fact that 'houses always grow' is absolutely not a foregone conclusion).

        Ultimately, it's your life and if you think your assumptions are sound then nobody is going to change that. But have you actually considered other investment vehicles? What sort of return are you looking for on your investment property over the next 20 years?

        • Looking4Bargians on 11/07/2016 - 12:11

          Haven't thought about any other investments yet but if returns are as good as property return for next 20 years then why not to consider.

      • humdingaling on 11/07/2016 - 12:14

        does your rental income take into account servicing?
        ie
        council/water rates
        insurance
        etc

        • Looking4Bargians on 11/07/2016 - 12:26

          if i all add up then it will be negative geared property which can same some on tax as well but won't help in getting that much new loan

        • tsunamisurfer on 11/07/2016 - 14:32
          +1

          @ozyboy:

          If you are going to negatively gear the property, then why are you insisting other include your rental income as future income since costs will be more?

          Claiming tax refunds will not be within the Lending Institutions' consideration for loan eligibility.

  • naritas on 11/07/2016 - 12:00
    +4

    We ran some figures and the general consensus in our office is that this proposal would be extremely tight on debt servicing. You're proposing $1mil in debt and the proposition would be very reliant on your existing property's rental income (which may be fine if it is in a high demand area - but is potentially a cause for concern if it could be hard to rent 365 days a year at $1700p/m).
    The major issue that we identified is to get the deal to service on most lender hurdles we need to assume extremely low costs of living and no credit card debt or other loans. This may be true, but as another poster pointed out - you will be under significant mortgage stress. Perhaps if you could aim to lower the purchase price by $100K (not sure if this is feasible) you'd have much cheaper options available to you than CBA and would probably not feel so pressured when it comes to the repayment size.

    Hope this helps.

    • Looking4Bargians on 11/07/2016 - 12:04

      So if i try to buy property around $600k and new property loan amount $475K with some other lander than CBA, this is possible ?
      total loan would be then $475k loan + $400K from old loan = $875K instead of $975K

      • naritas on 11/07/2016 - 12:37
        +1

        Generally speaking a loan of ~$870K looks at lot more feasible in terms of a maximum loan size based upon the quick calcs our team has done using the lender hurdles/credit criteria that we see on our panel lenders (of which there are over 100).

        Even at ~$870K we still had to assume you had no outstanding credit card debts or personal loans (which may not be true for your actual circumstances) to make this work for the majority of lenders on our panel. As such, this is a high side estimate. Naturally YMMV (and by a lot) depending on your specific financial profile (i.e. your actual expenses/commitments/goals/lifestyle) and what kind of lender/product you were looking for (good quality cheaper lenders typically have stricter loan criteria).

        Please feel free to send us a PM if you'd like to chat further as it would be our pleasure to assist.

        Hope this helps

        • Looking4Bargians on 11/07/2016 - 13:02

          Seems i have to pay higher interest rates to accumulate the risk being over debt as good quality cheaper lenders typically have stricter loan criteria

  • siraitken on 11/07/2016 - 12:32

    I'm in a similar situation re house values, income and purchasing another house.

    I'm an accountant so I'm fairly savvy with numbers and I don't want to extend my family to more than 800k in net debt.

    Given my numbers are almost identical to yours I wouldn't buy that property for 700k but maybe you could afford $550k?
    Alternatively if you really want the $700k house you could sell your current place and then look at investment properties in the future.
    As other people mentioned there is a lot of instability so over committing yourself may come at a high price in the future.

    • Looking4Bargians on 11/07/2016 - 13:00

      That's true but finding a new home for $550k is not easy in this market today.

  • sparkles on 11/07/2016 - 12:47
    +2

    Just looking at your figures gives me stress. So much debt and ultimately very little equity to fall back on. I guess everyone is different when determining comfort levels with debt.

  • whooah1979 on 11/07/2016 - 13:33
    +2

    aussies love debt. you should go for it, while the rest of oz wait for the foreclosure and short sales bargains.

    • [Deactivated] on 11/07/2016 - 14:11

      this 110%
      cant wait for a 70-110k houses as that is all that is owed on the loan

      • Looking4Bargians on 11/07/2016 - 14:15

        that won't be possible anymore.

        • tsunamisurfer on 11/07/2016 - 14:37
          +2

          Whilst Tuzii's example is extreme (and yes unlikely), the scenario you are proposing does bring you closer to a similar outcome. It is likely you will be overstretched, and any one event (not un-common) like short term unemployment, or illness could tip you over.

          You seem to resist what the advice here has been suggesting, which is fine. The ultimate test will be your Broker, he will know pretty quickly what is and is not likely to work.

  • flickr on 12/07/2016 - 10:26

    Looking at your figure, I will either sell the first home and buy a new one (avoid CGT in the future) or look for something cheaper in 500K range. For investment, it is better to find apartment/town house, you can put the body corporate bill etc and have a better negative gearing.

    P.S: Where do you plan to buy 700K new property? Is it new unbuilt property or second hand property?

    • Looking4Bargians on 12/07/2016 - 11:38

      Was looking to buy land and then build a property but seems can't afford that much price as per suggestion by you guys.
      Should go for cheaper 500k range for land and property but its very hard to find now a days in Melbourne.

  • ilikeradiohead on 12/07/2016 - 13:44

    I wouldn't count that $1700 as a given. The rental market could change, you could have a spell of it being empty, or you could have maintenance issues (or deadbeat tenants) that add costs to the the rental. Not sure what a reasonable number is, but maybe shave off 20% of that rental income to factor that all in.

  • Sweetnsour on 12/07/2016 - 19:11

    Either way sounds like you would need income protection insurance.

    You didn't mention why you wanna move. But if it's because u wanna invest in property then I would stay where you are and buy an investment property which allows you to work within your budget. A few years down the track you can upgrade. How ever it's a sacrifice of lifestyle for future gain.

  • onlyletters on 14/07/2016 - 23:45

    Don't buy a new property, just renovate your existing property for 100k

    you don't know who your new neighbours are going to be, perhaps much worse!

    Also you got stamp duty waived on your new property and now you have to pay it on the next property.. stuff that for a joke!! And they'll hit you up for it at tax time all in 1 hit.

    The new property might have other problems that may cost you more than the stamp duty to fix.

    Anyway I wouldn't do it but that's what I think.. save up your money.. give it a few years and revisit it later..

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