Confused.....

Hi All,

Ive just signed up to this forum in the hopes that my confusion can be cleared.....essentially my partner and I are looking at selling our current home and building a new one. we've engaged a mortgage specialist to see what we can borrow based on our financial situation, but this is where i become confused.

Our mortgage broker says that:

if we sell our property at worst case - $500,000.

based on the clearance of current home loans will leave us with approx $134,000 towards our deposit.

My partner and I have approx $29,000 in personal loans and credit cards which we want to wipe out upon sale of our existing place, which would leave us with $105,000 towards our deposit.

given that my partner and i will be upgrading and building, we want to keep $50,000 towards landscaping etc for the new place.
This would leave us with $55,000 as a deposit.

Using $55,000 as a 10% deposit, should allow us a purchase price of $550,000 which is a little less than the $650 we desire,
so I've enquired as to whether we can utilise the $55,000 as an 8% deposit + lenders mortgage insurance, which would allow us to theoretically purchase a $650,000 house & land.

But.....

on my income i have the capacity to borrow in the vicinity of $430,000 (my partner and i have decided that the property should be in my name initially)

so if my capacity to borrow is $430,000 + $55,000 deposit this would mean that we can only afford a purchase price of $485,000?
is this correct?

if my capacity to borrow is $430,000 + 100% of the remains of the sale of our current place ($134,000) this would potentially mean our maximum purchase price would be $564,000. Without paying off the personal loans and credit cards and having $0 remain at the end of the process for landscaping etc.

is my thinking correct? (i think I'm on the right track)
Ive enabled 'poll voting' but unsure what that looks like when i post, but i appreciate any guidance you may have!

Cheers
jono6466

Hi Jono,

Your maths (without looking at a calculator, it's late!) looks to be right in respect of how you're coming to the numbers.

One small spanner in your works - if you don't pay off the personal loans your borrowing capacity reduces and therefore your spend - which makes that calculation out.

You could, potentially, use your partners income towards borrowing capacity as a guarantor if they have a genuine benefit from it i.e.: spouse who resides in the home - even if their name is not on the property (but they would be a borrower or guarantor on the loan). Not sure of your driver there but that may help.

Can you hold back a little less for finishing costs? And / or give the values the quotes for finishing items / landscaping & get them included in the valuation? It gets a bit messy juggling payments to readies at the end but can work to improve your overall value for the 8% / 10% calculation.

Best of luck!

Hi Jono, I am a mortgage broker. Why wouldn't you put the house in your name but the loan in both to increase your borrowing power?

Also, basically what you have said is correct however your borrowing potential will decrease if you don't pay off the personal loans and keep all the deposit--- that's if the broker has done their calculations correctly.

Cheers
Caitlin

Thanks ladies!

my partner has a significant amount of debt in his name for his business ($120k+) which further decreases our borrowing power, hence our best chance at approval for the mortgage is through single application.

There is also a way to get the lender to exclude your partner as a 'dependant' spouse on the servicing calculator if you can provide proof of his income. Also depending if the debt is in a company name etc and depending on the lender, they will exclude that debt- just depends on who technically 'owns' the debt. Him or his company/trust

the debt is in his personal name, spread across a number of personal credit cards in his name.