Browse Forums Home Finance 1 Apr 19, 2013 4:23 pm I've been thinking about investment properties lately, and I thought I'd ask some questions here to get me started. I recently came to a bit of money, and my thought was that if I put some of that money aside and saved up some more, I could use it as a deposit on an investment property down the track (but not too far away because the reason I'm thinking about it is largely because the market is so good right now). One of my questions is, do the same rules apply to investment properties when it comes to qualifying for a bank loan as it does for a normal home that you're occupying? The reason I ask is that we are almost finished building our first home now, and we can afford the repayments of about $480 a week, but because we are low income earners, we wouldn't qualify on paper for another loan with repayments of say $350 a week, totaling $830 per week in repayments. So when you apply for a bank loan for an investment property, does the bank take into account that you will be getting a 80-100% return on your investment once you've rented it out, or do they still need you to be able to pay both mortgages as if you were not renting the second one out? Secondly, are there any different rules about deposits for investment properties; could we apply for a loan with a 10% deposit like with a normal home (assuming the bank allows low deposit loans)? Lastly, how does equity work? Say we need a $30,000 deposit and we wanted to use our current home as equity instead of a deposit; do we have to wait until the loan has been repaid by the amount we want to put against the new property ($30,000 in this case), is that how it works? Are there any other rules in terms of using your home as equity for another property? TIA for any helpful replies! Settlement: 10.02.13 Slab: 06.03.13 Frame: 08.03.13 Lock-up: 05.04.13 Handover: 03.06.13 Build thread: https://forum.homeone.com.au/viewtopic.php?f=31&t=59555 Brisbane Photography Re: Investment property questions 2Apr 20, 2013 7:48 am Hi MalinViktoria! It is a very active and great time to play in the market as there are a lot of investment opportunities and different strategies available depending on budget and income. To purchase an investment property it is the exact same process with all banks and lenders. The main policy differences is the they will either require 10% in genuine savings (which is 5% for deposit and 5% for fees and charges) unless you have 10% equity in your current home to show genuine savings. When purchasing an investment property the bank takes on 80% of the rental income to service the new loan you will be obtaining, they do not require you to be able to pay BOTH loans without rental income, this is how people with lots of investments build their portfolio. If your income is low then maybe looking at a area where the rental income is much higher then the repayments, this can mean going out of the city or looking at mining areas, or buying something small like a student accommodation As advised earlier a 10% deposit is perfect and you ill have evidence of equity in your current home. If your home for example is worth $300,0000 with a $270,000 loan you will have equity, but as the banks can only lend max 90% on a refinance and your are at 90% we can not obtain more funds. If for example you have paid down to $240,000 then at 90% of $300,000 means we can pull out another $30,000 of equity. The other factor can be that the value of the security increases. Always Happy to Help =D Any questions please fire away Hank. Re: Investment property questions 3Apr 20, 2013 8:16 am Good answer from Hank Just before you buy your investment property don't forget about pre purchase inspection, you don't want your investment to hit the rocks. Foremost Building Expert in Australia,assisting with building problems/disputes, building stage inspections,pre-contract review advice for peace of mind 200 blogs http://www.buildingexpert.net.au/blog Re: Investment property questions 4Apr 20, 2013 9:46 am Thanks both of you! That's good news! So just to clear up about the equity, are you saying that our home already has equity in what we have paid in deposit even though we haven't started repayments yet? Another thing that occurred to me is valuation. If the bank undervalued our current house, do we then have to calculate equity based on that, or on how much we actually paid for the house? We were undervalued quite a bit, unfortunately. Also, you say 10% deposit is perfect, but I assume the same rules in regards to LMI apply to investment properties? Settlement: 10.02.13 Slab: 06.03.13 Frame: 08.03.13 Lock-up: 05.04.13 Handover: 03.06.13 Build thread: https://forum.homeone.com.au/viewtopic.php?f=31&t=59555 Brisbane Photography Re: Investment property questions 5Apr 20, 2013 12:11 pm Cheers Build-expert i try to help Malin this is correct, as you have had your 10% already in genuine savings moving into this home it has been validated as "genuine" so far, so once it settled technically you have had the funds for 3 months already. If your house is valued and it comes in low this will effect you in a negative light, but there are instances where you can proceed with a new lender who does not know of your situation who will not value your property as it is not linked to the new application. You will then be able to give a value that you "believe" is the worth of your home. Being undervalued is a kick in crotch, but remember is a long term thing not instant profit. yes it is the same rules at 90% the banks can capitalise the LMI on top. You will need 10% deposit + Stamp duty and fees. Or if 10% is all you have you will need 10% which will cover a 5% deposit + stamp duty and fees. Re: Investment property questions 6Apr 20, 2013 5:27 pm jb_money Cheers Build-expert i try to help Malin this is correct, as you have had your 10% already in genuine savings moving into this home it has been validated as "genuine" so far, so once it settled technically you have had the funds for 3 months already. If your house is valued and it comes in low this will effect you in a negative light, but there are instances where you can proceed with a new lender who does not know of your situation who will not value your property as it is not linked to the new application. You will then be able to give a value that you "believe" is the worth of your home. Being undervalued is a kick in crotch, but remember is a long term thing not instant profit. yes it is the same rules at 90% the banks can capitalise the LMI on top. You will need 10% deposit + Stamp duty and fees. Or if 10% is all you have you will need 10% which will cover a 5% deposit + stamp duty and fees. Thanks, jb_money! Out of curiosity, I just went onto Westpac's website and used their equity calculator, and it tells me I have no equity. I don't get it. Only when I plug in fictional numbers that equates to the loan amount being 20% less than the house value does it start giving me equity. Can you use equity AND new genuine savings as a deposit? ETA: Just tried the NAB calculator, and it's giving me better numbers, more in line with that you said, jb. I put in value of the house at $390,000, and loan at $360,000, and it tells me I have $30,000 equity. Settlement: 10.02.13 Slab: 06.03.13 Frame: 08.03.13 Lock-up: 05.04.13 Handover: 03.06.13 Build thread: https://forum.homeone.com.au/viewtopic.php?f=31&t=59555 Brisbane Photography Re: Investment property questions 7Apr 21, 2013 11:05 am Following the NAB calculator is closer to what were talking about, there are other genuine savings calculators out there if you keep looking. You have a combination of both that will help. As long as you have enough equity and deposit it is possible to move forward. Of course i have not gone through the rest of your situation to give a better assessment. Re: Investment property questions 8Apr 21, 2013 11:21 am Thank you so much for your help, jb! I really appreciate it! Settlement: 10.02.13 Slab: 06.03.13 Frame: 08.03.13 Lock-up: 05.04.13 Handover: 03.06.13 Build thread: https://forum.homeone.com.au/viewtopic.php?f=31&t=59555 Brisbane Photography Re: Investment property questions 10Apr 22, 2013 8:14 pm MalinViktoria Thanks, jb_money! Out of curiosity, I just went onto Westpac's website and used their equity calculator, and it tells me I have no equity. I don't get it. Only when I plug in fictional numbers that equates to the loan amount being 20% less than the house value does it start giving me equity. Can you use equity AND new genuine savings as a deposit? ETA: Just tried the NAB calculator, and it's giving me better numbers, more in line with that you said, jb. I put in value of the house at $390,000, and loan at $360,000, and it tells me I have $30,000 equity. Have to say both those calculators are wrong in their own way. The Westpac one only takes into account equity up to 80% LVR as you found out but they will allow up to 90% for equity access with the use of LMI. The NAB calculator does show you the actual equity but there is a difference between actual equity and usable equity, which once again would be a maximum of 90% of the value of the property. So if your property is worth $390,000, then the usable equity (if you wanted to pull funds out for any purpose) cannot exceed $360K x 0.9 = $351K. Therefore if your current loan is $360K, you aren't able to top up your loan as it is excess of the maximum allowed amount. LMI is not such a bad thing with an investment property as it is with an owner occupied property because the LMI amount is tax deductible over 5 years or the life of the loan (whatever comes first). There are also other little tips and tricks that you can engage to pay down you owner occupied property faster while at the same time maximising your tax deductibility through the investment loan. Cheers Tom You might be able to apply to divert the sewer at your expense. In NSW you would contact a Water services co-ordinator and they would give you advice as to whether or not… 1 16130 Ask for some kickplate to be added and also for tradies to be requested to use lanyards on tools on that side of the building. 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