Browse Forums Real Estate 1 Sep 20, 2010 4:00 pm This is just a general question... I don't see how brokers, banks etc work out how much to allow a person to borrow...I mean, obviously it's income, savings history, credit rating, and such other factors, but for instance, we've been approved to borrow up to $400,000. My net weekly income is $420. My partner's is $540. Total $960. We are already paying off a loan for our current property. I pay $180 a week, my partner pays $240. Total $420. This is already almost half of our net income... I looked online and saw that even if we paid ONLY the interest back on a new loan we're looking to get, the repayments on the max amount of $400,000 would be about $250 a week...add that onto my existing loan and I'm now paying $430. MORE than my net income!? (my partner would be paying $490, which is almost her entire net income too). And that's not including any of our other required and non-negotiable expenses, like body corporate ($49 a week at our current place, and would be an additional $28 a week if we had the new place we want to purchase as well), council rates ($45 a week, plus an additional $35 a week at the new place), insurance, transport (public. We don't drive - can't afford a car), electricity, phone, and so on... I worked out roughly that in total, my expenses would be approximately $150-$200 a week MORE than what I earn! HOW do they work out that we could possibly afford to pay this loan back??? How the hell did I become a senior member!? I know nothing! Re: Baffled by home loans!! 2Sep 20, 2010 7:14 pm Grace, when you say you've been 'approved', do you mean pre-approved by way of an online application, or through the broker, or...? I've been reading your other thread about the type of loan, and what YOU plan on doing with those loans and repayments, but can I be brutally honest with you? I think you're heading into some very dangerous territory. Your circumstances are a little different to some others already, due to having a registered loan with your mum. I really really think you need to sit down with a professional, face to face, and sort through all of this stuff. I know you've got your heart set on the auction place, but seriously, cut your emotional ties *just in case*. You really do need to sit down and sort through all of these scenarios with someone who is qualified to give you the right answers. Good luck with whatever happens. I do hope that things work out for the best, and that you get the home you love. Oceanic with Nautilus upgrades. Handover 8 September 2010 Re: Baffled by home loans!! 3Sep 21, 2010 12:53 pm Thank you. I am very nervous about it. We only have 5 days till the auction and I’m totally up in the air. We’ve been asked to supply 6 months worth of credit card statements, which I don’t even HAVE cause I don’t keep my statements, passports (which we don’t have), driver’s licenses (which my partner doesn’t have)…sigh. It’s really stressful. Then there’s the forms we’re meant to fill out and email back, but I can’t complete them because I don’t understand them. I’m not dumb, but they ask for the loan amount and the lender and the product name and interest rate, and we have no idea about all of this as we haven’t been told! When you get pre-approval (which is what this would be. We just want to know we CAN be in a position to bid and/or negotiate at auction on Sunday if the price stays low enough), are you supposed to get pre-approval for a SPECIFIC loan product? Or is it just general pre-approval for an amount and then if you need to later use it (if we buy the property), then the specifics are sorted out?? If this is the case, alright, but I’d like to KNOW the specifics BEFORE we commit to bid or buy, because if the interest rate is too high or the repayments on a specific loan product are too much, then we have to re-think how much we can bid / borrow. There’s no point being pre-approved for $400,000 and then feeling secure in that you can buy the property, only to then later be confronted with loans that you can’t afford to pay back!! I was under the impression that by having the mortgage on our current property (to support the loan amount going over the purchase price of the new property, as outlined in my other thread), it wouldn’t affect our loan to my mum…the broker said it wouldn’t. I’m just annoyed because yes, this is all rushed and stressful, but I can’t see in the future much being any different…I mean, we CAN’T sell our place first. We just can’t. Places we love and can fit into and that are in locations we can get to and find convenient and that “tick all of the boxes” (or most anyway) are VERY hard to find around here…in our areas of choice, new places come onto the market maybe once every few weeks…it’s SO SLOW. The areas are small, so that’s understandable. We can’t branch out and live further away, as we can’t literally GET there, as we don’t drive (can’t afford to have cars). I’ve been looking online every single DAY for over a year, and this is the first time something we seriously wanted to buy and could live in happily has come on the market…so it could realistically take a year to find another one…and in the meantime, if we sold beforehand, we’d be sitting on this money and watching while the prices went up…and by the time we found something else to buy, it’d be too expensive again, whereas at least if we sold at the same time as buying, we’d be on more equal footing. Also, we’d have to rent if we sold long before buying (even if we got a good buyer who let us live in our place and rent it from them for a while, this is unlikely and we couldn’t depend on it for any length of time), and hardly ANY rentals let you have pets. We NEED to have a pet friendly place as we have 2 cats and of course we can’t give them up!! And so we’d always be in a position where we’d have to buy BEFORE we sold…the only differences MIGHT be that maybe next time the market would be more active and we might be more confident in being able to sell our place in less than 3-6 months. Right now it’s so hideously slow and getting a price anywhere near the realm of what the agents’ valuations are is like pulling teeth. Virtually impossible. Also a difference would be that we wouldn’t need to rush the finance, BUT the same thing would end up happening in that we’d still need to borrow MORE than the purchase price, because we simply can’t cover the deposit and all the legal fees…all together, it’d be over $25,000 just for those and we just don’t have that money ****** around. Neither of us really earn enough over our necessary expenses to save that much money either. Another difference that MIGHT happen is that we might find a new place that’s LESS than the sale price of our existing place…right now it’s kind of equal…we can’t bid higher than the expected sale price for our own place…but then on top of that, as I said above, is the extra loan for the fees and stuff…so we’d always be on the “back foot” so to speak… SIGH. What to do… Also, it’s hard to let go of this new property. Obviously we will if it goes beyond our price range. That’d be hard, but nothing we can do about it. But it’d be ANGUISHING to have it go for a price LESS than what we could sell our place for, and a total bargain, and not be able to buy it because of finance things…I’ve been living in our current place for 2 years and been utterly miserable the whole entire time. I need to be happy again. I don’t want to wait another 2 years to be happy. I can’t! How the hell did I become a senior member!? I know nothing! Re: Baffled by home loans!! 4Sep 21, 2010 2:57 pm Hello grace_slick I'm certainly no expert, but just because the bank says you can borrow $400K doesn't automatically mean you can afford to service it, I guess it's ultimately your responsibility to do the sums before committing to the loan. When we applied for our mortgage, before checking out the banks, we worked out the maximum monthly loan payment we can afford to pay while living comfortably with all our other expenses. We then reverse engineered to work out how big a loan we can get, then shopped for a property. I know it's very hard to let go of a property that matches exactly what you are after, but while good properties come and go, a financial debt paid short stays with you for a very long time. I know your circumstance makes it difficult for you to sell first then buy, but I truly think this is the best option for you for peace of mind, rushing into this purchase has the potential to bring financial hardship for you and that's very stressful. Good luck whichever way you decide cheers jim Re: Baffled by home loans!! 5Sep 21, 2010 3:51 pm Hmm, I hear ya... I just wish it wouldn't be so almost impossible for us to sell first and then find somewhere else...cause it realistically, as I already said, could take a year or more to find a place we like AND that's practical for us. And then we'd have the major stress of not having anywhere to live (rent), and nowhere that would take our cats, and the places that do tend to be more expensive OR hideously tiny and disgusting... And if we did take a year, then that'd be almost $20,000 just paid in rent...SIGH! How the hell did I become a senior member!? I know nothing! Re: Baffled by home loans!! 6Sep 21, 2010 9:56 pm Can't help you much, but just check your serviceability as mentioned already. You said interest on a 400k loan would be $250, not quite. You're looking at more like $600/week allowing for interest rates to rise to around 8%. Based on your current incomes, you can't afford this. Who approved you to borrow up to 400k on your current incomes? Re: Baffled by home loans!! 8Sep 22, 2010 1:37 pm Blackspider, nobody’s given us proper approval yet. We’re still liaising with the broker and filling out forms and such. The broker is the one who mentioned the figure of “up to $400,000”. I calculated interest (only, no principle) on a $400,000 loan at 6.5% to be $26,000. And yes, rates will no doubt rise, but we’d be paying off the majority of this loan in 1-6 months, as soon as we can sell our current property. This loan is not intended to be long term at ALL. The loan repayments of $500 a week (based on the 6.5% on $400,000, and we wouldn’t actually borrow this high amount anyway) are also halved between my partner and I. Yes, I think we’d be biting off more than we can chew, most definitely. NOT if our current place can sell in 1-3 months. Then we’d be fine, except we’d still have about $50,000 of the loan left unpaid, as we’d never get a high enough sale price to cover that loan. The extra part would just relate to the legal fees, stamp duty, deposit, etc. The biting off more than we can chew scenario only comes in if we have difficulty selling our place…which in this current market, I won’t say is LIKELY, but I’d expect to take quite a while, let’s just say, and if it DID take ages, then we’d be in huge trouble. I keep saying this to my partner but she gets a bit upset and annoyed at my “negativity”. I’m just trying to be REALISTIC, I say!! I said a few days ago, we CANNOT do this if we can’t even ACKNOWLEDGE the fact we might not be able to sell our place (a) in a reasonable time, and (b) for an adequate price. What would we do then?? We’d have to sell our lovely NEW place we love so much and went to so much trouble to get!!!!!! And we’d have lost $50,000 as well, in all the fees. MORE than $50,000 in fact, cause then we’d have FURTHER legal fees to pay for that extra and unwanted sale!! And also, we don’t know how high we can bid either still, due to the fact we’ve not been told what the interest rate would be and how much we CAN borrow. Once we know the interest rate and what the repayments would be interest only, THEN we can work backwards and see what we can manage, and most importantly, for HOW long. (the broker also mentioned I could borrow even MORE to provide a buffer for my bank account so I CAN afford the repayments if it does take a while to sell our place. But isn’t this odd?? Is this a normal thing to suggest? I’d still end up paying more because yes, I could MANAGE the repayments using the loaned money, but it seems weird to me to borrow money to pay BACK that very same borrowed money!!!) Thanks so much for your PM, Xquisite! How the hell did I become a senior member!? I know nothing! Re: Baffled by home loans!! 9Sep 23, 2010 6:35 pm If you do bid/buy, you're signing subject to finance.... right?! viewtopic.php?f=31&t=37229 - our Iris 4! Re: Baffled by home loans!! 11Sep 24, 2010 10:56 am Yes, it is a STUPID auction, dammit! Buyers seemingly have NO rights at auctions and the contract has NO “subject to” clauses in it. You sign it and you’ve bought it. How the hell did I become a senior member!? I know nothing! Re: Baffled by home loans!! 12Sep 24, 2010 1:08 pm Yep you have the same rights - you just have to do all the legwork before you secure the property. No use whinging about it - auctions are chosen for a reason. Don't like it? Don't bid...... Some things are worth waiting for. Re: Baffled by home loans!! 13Sep 24, 2010 1:21 pm Believe me, we wouldn't be bidding if it wasn't for a place we absolutely LOVE. *sigh* It'd be a DREAM if it was just a private sale. Ugh! Around here hardly anyone uses auctions... How the hell did I become a senior member!? I know nothing! We already paid for somfy motors for the blinds. The quote above was purely for “pre-wiring” so the blinds company can install the motors and blinds. 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