How Do Residential/Investment Loans Work

TheBilly on 13/10/2017 - 09:54

Hi All

Just wondering if anybody who has a technical understanding of home loans (both owner occupied and investment) can shed some light on the below information. It is more for my future planning than anything, and I want to avoid getting caught up with various brokers/banks at this stage as it is preliminary. Hopefully the answers in this can probably help someone moving forward as well.

  1. I currently own an investment property with an LVR of about 70%
  2. LVR is based on purchase price and not an actual valuation - so could be higher maybe lower
  3. Is currently cash flow positive
  4. But overall negatively geared

I'm wanting to purchase another property, but in this case to live in and not invest. Happy to go either owner occupied or investment loan route. I understand their rates are different, but my income inhibits borrowing capacity under owner occupied and given I want to buy in Sydney borrowing capacity is a need if anything nowadays.

What I would like to know is:

  1. If I use investment property equity to purchase another place and LVR goes to 90% instead of 70% - do I pay LMI on investment property as it exceeds the typical 80% threshold even though it's already owned?
  2. Do I pay stamp duty on this refinancing of the investment property?
  3. Maximum LVR you can borrow on an owner occupied nowadays? 95%?
  4. Maximum LVR you can borrow on an investment nowadays? 90%?
  5. When the bank calculates their LVR will they do this on purchase price or evaluation?
  6. Who does the evaluations - Is my agents appraisal appropriate?
  7. When reviewing borrowing capacity - is it as simple as saying (Rental Income (minus) Expenses) = Positive, so positive gets added to your potential income?
  8. Or does a liability reduce this potential borrowing irrespective of it being positive or not?
  9. Do banks accounts for private rental agreements income or only agent managed agreements income?
  10. How many months of income do you show for it to be factored i.e. if I get a pay rise tomorrow - how long before bank considers this the new benchmark?
  11. If all goes well, how do loans get structured? or what is the best way to structure? i.e. 1 big loan for 2 properties? 2 separate loans? Is there positives or negatives to either method?

Thanks in advance for your help !!

Financial

Comments

  • onetwothreefour on 13/10/2017 - 10:14

    Yes

  • skinner on 13/10/2017 - 10:20

    http://bfy.tw/ERok

    • redfox1200 on 13/10/2017 - 11:17

      the first result links to oz bargain! that must be where all the info is at!

      • skinner on 13/10/2017 - 13:24

        Linkception

  • Realsteel on 13/10/2017 - 11:03
    +2

    Mate, you are better of speaking to a mortgage broker/professional re loan structures/tax outcomes. There seems to be a lot of basic questions which a mortgage broker should be able to assist with re loans. You can also try and do some research on your own.

    1. Short answer yes, generally speaking anything above 80% will attract LMI.
    2. N0. Stamp duty is paid on transfer of property. Refinancing may attract some bank charges (depends) but not stamp duty.
      3-4. Depends on your earnings/assets/borrowing capacity- hard to say
    3. Bank does a valuation and will generally use this. If you are buying a property and valuation > purchase price, bank will use purchase price. They will always be conservative.
    4. No. Appraisal is different from valuation. Never rely on REA appraisal. Banks will do their own independent valuation.
      7-8. Depends on your earnings/assets/borrowing capacity- hard to say.
    5. Should not necessarily matter if it is binding and you can proof rental income coming in.
      10-11. Depends on your individual circumstances. Understand your financial goals and structure it accordingly.
    • dcep on 13/10/2017 - 12:27
      +1

      bank use corelogic autoval report as well.

  • Seraphin7 on 13/10/2017 - 11:12
    +1

    Your questions need to be put to home lending specialist, but to give you some starters …

    1. Most likely you will be up for LMI. A refinance is essentially a new loan and is treated accordingly.
    2. Not property stamp duty as there is no change of ownership (I'm assuming). There may be mortgage stamp duty (about $200 from memory), but not sure.
    3. Dependent on lender.
    4. Dependent on lender.
    5. Typically the lesser of purchase price and their own valuation.
    6. The lender's valuer. They will not accept your agent's appraisal.
    7. Your total income/expense situation will be reviewed, not just "the additional" income on an assumption that your previous income is still all the same. See 1.
    8. See 7.
    9. You need to be able to prove the income. Precisely how you receive it is not important.
    10. Dependent on lender.
    11. You'll need to discuss with your accountant.
    • TheBilly on 13/10/2017 - 12:47

      I think I will get in touch with accountant, but I want to steer clear of brokers because it becomes very salesy at a point, from my limited experience to date

  • spal on 13/10/2017 - 11:58

    I will answer number 12:
    You would need to have minimum two loan accounts, one each for investment and home loan. Investment expenses need to be kept separate of your private expenses. How this might look is say outstanding balance of the investment loan is 500k. The bank values your investment property at one million, and lend 80% of the value. So, now you will have additional funds of $300, which you could use it towards buying your home. However, interest payments on the additional amount is private expense and not tax deductible. When you buy your home for say another million including all expenses, your home loan will be a million dollars, and investment loan $500k. You will not need to chip in any cash as it will be funded from cross lateral from the equity in the investment property.

  • suti on 13/10/2017 - 12:12
    +1

    "my income inhibits borrowing capacity"

    ….. but i still want to borrow anyway. Hopefully the RBA continues to see that they need to pity us folk who wern't in a position to overgear ourselves but did so anyway, and leaves the cash rate where it is forever.

    • dcep on 13/10/2017 - 12:29
      +1

      rba got no balls to raise anyway

      they either raise and kill the market

      or leave as it is, but face dull stagnant economy for 10 years.

    • TheBilly on 13/10/2017 - 12:44

      I know, it sounds silly, but it's relative. For example, the bank says I have a borrowing capacity of $750k as an investment versus $700k as an owner occupier - when you are looking in the Sydney market, a variance of $50k like that pretty much is the difference between being in or out of the market nowadays. Considering the lower end of the market which was the western suburbs is sitting in and around the $650-$750k mark nowadays. It would be a different story in Melbourne for instance where you have $250-$300k options and $800k options.

      • HighAndDry on 13/10/2017 - 15:24

        That's not the bank's fault, that just means the rental income from the property is the difference for you in being in or out of the market.

        Rental income is actual income.

  • Shibuya on 13/10/2017 - 12:18
    -1

    You might get more info from propertychat forum as there are a lot of mortgage brokers there

    • TheBilly on 13/10/2017 - 12:44

      Cheers !!

  • TheBilly on 13/10/2017 - 12:45

    Thanks for the input all, I might actually hit the property forums for more insight.

  • HighAndDry on 13/10/2017 - 15:30
    +1

    Talk to a mortgage broker - most are more than happy to give you as much time as you want if they think they can make commission.

    In short though:

    1. If you've had it a while, the value might go up and staying at 70% you might be able to refi to get more money out of it.

    2. No.

    3. Depends. Haven't seen anything near 95% thought.

    4. Same as 3.

    5. Lower of purchase price or valuation - for new purchases. For refi - valuation.

    6. Bank has their own valuers. Good to know a mortgage broker who knows these valuers.

    7. Not really, rental income just gets added to your total income.

    8. No such thing as a positive liability.

    9. Private rental agreements count too.

    10. Usually 3 months. Depends.

    11. Depends. Ask your bank, see if they have specials for new customers, refis, fixing a portion, etc. Also ask your tax accountant.

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