Browse Forums Home Finance 1 Sep 24, 2010 7:52 pm Ok, maybe I'm being a tad melodramatic, but this is how it feels. Today, 2 days before the auction of our beloved place we want to buy, we're told we DO have conditional pre-approval for finance up to $410,000 (more than we'd need), BUT we can't do it. The condition is un-doable for us. We currently have a mortgage with my mum (I pay no interest, my partner pays 0.5% more than what my mum gets on her term deposit, which is less than lenders' mortgage interest rates). The lender in question wants that mortgage transferred to them and THEN they'll lend us all that money (that we don't even need. We don't need $410,000! We'd only need maybe $350,000). So we can't do it. Even if we WANTED to discharge the loan to my mum (and she did that to help us out, not for this to happen), we simply couldn't afford to pay a total loan of $665,000 at 6.75%!! That's ridiculous! They put this condition on because we'd need to borrow MORE than the property purchase price (not that we know what that is, as it's an auction, but no matter what, we'd need to borrow more than the purchase price, to pay for the legals, deposit, stamp duty, etc), so they then need a mortgage on our own current property, and not just the new one...*sigh* So there goes that. And unless we sell FIRST, we're never going to be able to do it any differently...we're ALWAYS going to need to borrow more than the purchase price. And we CAN'T sell first because then it'd take us 1 year + to find another place we loved (this one took forever to come on the market and our radius of suitable areas for properties is about 4 streets in one area and 15 streets in another nearby, more expensive, area. We don't drive and we NEED to be near certain things), and in the meantime we'd be priced-out of the market again...AND we'd have major difficulty in finding a rental that'd allow our 2 cats...AND we'd then be throwing away about $22,000 a year in rent...just dead money...we could be saving that up for the new place, but no. This sucks. We're stuck. How the hell did I become a senior member!? I know nothing! Re: SIGH - we can't get finance. Ever. 2Sep 24, 2010 10:54 pm Hi Grace, I might not be understanding things correctly, but why not do the following: Let the lender transfer the mortgage to them. Pay your mum back her money for the mortgage and she can put this in a term deposit. Purchase the new property with the additional bank finance. Wait a month. Borrow the money back from your mum and pay down the loan on your current house so the bank no longer has a mortgage on your current property. This would meet the banks requirements to have security over your existing property whilst you are geared higher than 100% (i.e. stamp duty etc) but also let you do what you want. You may find that you would be penalised with an early repayment fee, however assuming you have a variable interest rate and no early repayment penalties, you could simply pay down the loan to $1 and you shouldn't get these fees. Hope this works for you or at least gives you some ideas. Cheers Adam Re: SIGH - we can't get finance. Ever. 3Sep 24, 2010 11:07 pm Love to help , could you please reply to the following questions . 1. Who owns the current house and what is market value of the property ? 2. Are you using your current place to support the new lending ? 3. Would/could you rent your current house to help support your new/exisitng loan ? 4. How much do you owe you mother inlaw ? Just trying to solve a couple of questions before I help with a recommendation. Cheers M Re: SIGH - we can't get finance. Ever. 4Sep 25, 2010 9:53 am Thanks so much for trying to help, lovely forum members... Foresterxt... 1. Myself and my partner own the current property, and it's been VALUED by 3 agents at between $340,000 - $370,000, but recent sales of similar properties in our local area (almost identical properties) are only getting very low $300s (which is less than what we paid for it 2.5 years ago *SIGH*) 2. We would be using our current place to support part of the new loan, but only because we'd need to borrow more than the purchase price of the new property we want to buy. 3. We could rent our current place once we moved, if we bought the new place, but rents are low here and apparently there are a lot of rentals around for not many prospective tenants. 4. We initially borrowed $345,000 from my mum (purchase price plus stamp duty and other legals. The purchase price was $337,000) and now owe her approx. $315,000. Basically, if we transferred the loan to my mum to the lender, at 6.75%, our total loan would be $725,000. WHAT?! We CANNOT pay that back!! That is a ridiculous amount of money when I only earn $24,000 a year for instance! The bank will lend us $410,000 they say, if we satisfy this condition. But as I said...we just can't repay it. Even just the interest only repayments per week would exceed my income. Can't do it. (not that we'd need that much. We'd need about $360,000...but even that added onto the existing $315,000 is too much for us to pay back week to week). Hotmercury, I'm a tad confused...when you say we could transfer the loan to my mum to the lender...and then pay my mum back? With what money would we pay her back?? Do you mean that once the loan to her is transferred to the bank that THEY would pay her back, like in the transfer? And then we'd just owe the bank? Is that how it works? But see, what I don't get is that in that case my mum would be owed $0, we would owe the bank around $700,000...then we re-borrow from my mum and pay off a part of the bank loan (which amount? The old $315,000 again I presume? Not the new property amount?) and so we'd only owe the bank's the remaining $360,000 or whatever, but then we wouldn't be in a position to pay that loan off until we sold our current place...and that'd probably only get about $330,000...maybe... Hmm. How the hell did I become a senior member!? I know nothing! Re: SIGH - we can't get finance. Ever. 6Sep 25, 2010 1:05 pm Ah, no I don't think that'd really do much in our specific situation... How the hell did I become a senior member!? I know nothing! Re: SIGH - we can't get finance. Ever. 7Sep 25, 2010 1:06 pm I just thought of something...what if the lender meant when they said they need to discharge the existing mortgage to my mum, that they DIDN'T mean they'd take it and add it to the new loan we require..what if they meant we had to somehow just pay it all off!!?? Could that be the case? How the hell did I become a senior member!? I know nothing! Re: SIGH - we can't get finance. Ever. 8Sep 25, 2010 4:09 pm Goodness gracious me!!! My mum has now said we can bid up to a certain price and then we'll only need to borrow from the lender the amount we still owe to her...so they'd have the only mortgage on our current property, and SHE will buy the new property and then when we sell our place, we pay the lenders back the money we owe on it, and then we continue on as normal with the loan through my mum, but for the new place. WOW. We've been on a roller coaster for weeks with this!! It'll all be over (hopefully) tomorrow...either way... How the hell did I become a senior member!? I know nothing! Re: SIGH - we can't get finance. Ever. 9Sep 25, 2010 7:25 pm Does your Mum already own her own home? If so, she will be up for capital gains tax if you ever sell the new purchase. Unless she moves into it for a period of time when first purchased and claims it as her own home (but then she can't sell her other home CGT free). Otherwise, you can transfer the title from your Mum to yourself, but you will be up for another lot of stamp duty and legals. The way you want to structure it is very messy. You best off separating your financials with your Mum. My advice would be to find a "great" mortgage broker and take their advice as to what you can and can't do, and get a good financial structure in place. Your current broker doesn't seem to have a clue, most don't. Good luck Re: SIGH - we can't get finance. Ever. 10Sep 25, 2010 7:42 pm When you say separate the financials from my mum...what do you mean exactly? In terms of her and capital gains tax, well...she owns her own home (with my dad) in Melbourne. She paid for our current place, and that's the loan we're currently paying off to her. So what's the difference if she pays for the new place too, and again we then pay her off? She's never been on the title for our current place. It's just my partner and I as tenants in common. She never mentioned anything about paying capital gains tax if we ever sold THAT, so what's the difference with the new place? How the hell did I become a senior member!? I know nothing! Re: SIGH - we can't get finance. Ever. 11Sep 25, 2010 9:16 pm Hi Grace, The bank would not likely want a second mortgage (after your mum) on your existing property. So they would want you to "transfer" it to them so that if they were forced to sell they could sell both properties and use the equity to recoup their cash. So basically by taking the loan from your mum you are effectively transferring the loan from one lender (your mum) to a new lender (your bank). In this case, the new lender would pay out the old lender. What the bank is trying to avoid is the new home value falling below the loan they have given you. on the numbers you provided it appears you would be borrowing more than 100% which is why the bank wants a second security to protect them (i.e. your current home). You are also very likely to be paying Lenders mortgage insurance which protects the bank further if you default. So if you re-borrow from your mum in due course, then you can pay down your old loan and pay your mum the lower interest rate. However, remember in any case, you will be paying a mortgage of around 315,000 for your current home and approximately 360,000 for your new home. It doesnt really make a difference you finances your current home (i.e. your mum or the bank) in terms of the total loan value you need to service. The only benefit of your mum providing funding is the lower interest rate, low fees (i.e. presumably none) and the ability to not need to press 1 then 2 then 4 then 6 then squawk like a chicken, then be transferred to india to talk to the right person when you call her. You need to be able to pay the interest on the approx 725k to buy the new home. Remember though that the rent of the current home will help pay the mortgage and can have tax benefits if your partner is a high income earner. Your salary unfortunatley wont have a huge amount of tax benefits attached. hope this helps. P.s. are you using a broker? If so, go and give him/her a very big slap as they should be explaining this to you in extremely fine detail. In fact, in WA I believe it is now law that the lenders ensure you can service the loan to prevent the high level of mortgage stress we are seeing now. Re: SIGH - we can't get finance. Ever. 12Sep 25, 2010 9:23 pm grace_slick When you say separate the financials from my mum...what do you mean exactly? If you have your mum on the title etc then she cant simply transfer it to you in due course without you paying stamp duty etc as mentioned in the other post. This can easily be tens of thousands so it needs to be considered. Also if you have issues with your mum etc things can be murky as she owns the home not you (via the bank). Hopefully would never happen, but something to consider. grace_slick In terms of her and capital gains tax, well...she owns her own home (with my dad) in Melbourne. She paid for our current place, and that's the loan we're currently paying off to her. So what's the difference if she pays for the new place too, and again we then pay her off? She's never been on the title for our current place. It's just my partner and I as tenants in common. She never mentioned anything about paying capital gains tax if we ever sold THAT, so what's the difference with the new place? It really depends on if she is purchasing the property under her name, or you are purchasing it with your mum simply providing finance. If she is purchasing under her name, when you "buy" it from her (or she transfers the title to you) she will pay capital gains on the property and you will pay stamp duty etc. However if she is simply the "bank" in the transaction, then this doesnt apply. Definitely kick your current broker. Re: SIGH - we can't get finance. Ever. 13Sep 25, 2010 11:11 pm Sorry, I misunderstood you. I thought your Mum was going to be on the title of your new place, as you said she was going to buy the new place for you. So you really me she is going to provide the funds for youto buy the new place, right? If your mother has the funds to purchase outright, then you should have no problems. I wouldn't bother with the banks if your Mum is ok and a little flexible with it. The terms should be alot easier for you if you ever get into a bit of struggle kepping up repayments. I'm sure she would understand your situation alot more than the banks would and know you are trying to sell your existing place so you can pay her off. If your Mum has the funding and is willing to help you, then you are in a strong position. Good luck Re: SIGH - we can't get finance. Ever. 14Sep 26, 2010 3:29 pm Meh. Was passed in at $360,000 vendor bid after an opening bid of $300,000, one other bid of $320,000 and that's it. Our max price is $320,000. Blown out of the water I'm afraid. *sigh* How the hell did I become a senior member!? I know nothing! you were just referred to get advice from your solicitor. This is a legal matter. Separately, why would you use a buyers agent for a house and land package? 3 58553 Depends how much direct sun it gets. Is there any shading (eaves or trees)? If the sun hits a window directly it doesn't matter too much if it's double or single… 1 12753 9 25003 |