Finance Approval - Investment Property

Lman37 on 19/02/2019 - 15:09
Last edited 19/02/2019 - 15:17 by 1 other user

Hi everyone,
I need your valuable advice. I currently own a house. I purchased a land for an investment purpose in 2017 and paid the initial deposit of 25K. The land title is expected very soon. Due to banks tightening the lending, I am struggling to get my finance approved. The land contract has a clause “Not subject to finance approval” and “cannot be sold to anyone else, except blood relative”. I am between a Rock and a Hard Place. I don’t know what to do?

I am considering following options:

Forget the deposit (25K)
Sell my current home

Please suggest what to do? Thanks for your valuable advice.

Financial Investment

Comments

GG57 on 19/02/2019 - 15:19

+2

If you own your home, can you not use your equity to borrow the $ ?
- ykwon10 on 19/02/2019 - 15:32
  
  ^this
Sshanaz on 19/02/2019 - 15:20

Forget the deposit if you can't obtain loan.

Would be interested to know why your finance is not getting approved?
- man37 on 19/02/2019 - 15:35
  
  I have around 200K equity and 75K cash and I don't understand what mortgage brokers are doing. They keep saying your wife doesn't work and you have two children (Grade 1 and 2 year old)….I have 115K full time permanent job. I don't know why it has become so hard…..
  - bobbified on 19/02/2019 - 15:40
    
    Your situation doesn't sound bad, but it sounds like declining based on your monthly expenses.
    
    How much is the current loan on your home and how much are you trying to borrow for this land?
    - man37 on 19/02/2019 - 15:42
      
      325K Current Loan and trying to build a house for 500K (250K Land + 250K Construction) . Have 75K Cash and 200K equity.
      - bobbified on 19/02/2019 - 15:53
        
        +3
        
        @man37: I'm thinking that this might be the reason:
        
        Income: Assuming $115K is your base salary (exclusive of super), it's approx $7000 month after tax
        Monthly Expenses for the loans (if approved) would be over $4,000/month (that is $1600/month for $325K loan and $2500/month for $500K loan, a taround 4% for 30 years).
        
        Which leaves you with less than $3,000 month to feed four mouths. Less if you've got any other expenses like credit cards, school fees, insurance, motor vehicle expenses, etc. Your remaining amount of monthly $$ isn't a little, but it's also not a lot. Based on the very simple calc above, I would think you'd be somewhere right on the borderline.
        
        I think you're best going to a broker to try the non-bank lenders that consider "out of the box" situations like yours. Pepper money, Liberty, etc.
        
        yoonibear on 19/02/2019 - 16:33
        
        +1
        
        @bobbified: ^ this.
        I think the banks are cracking down on serviceability
        
        man37 on 20/02/2019 - 13:44
        
        @bobbified: Thanks for your valuable suggestion. I have just one credit card which I use to pay for everything i.e. Bills, Shopping everything :) I extracted some numbers from my credit card history and my average monthly expense for this Financial Year is $2,075 :) I don't know why banks aren't looking at 7 eleven $1 coffee. They simply assume AVG family of 4 will need $4,000 to feed. If they don't want to use numbers to assess individual's application then there's no point asking for a bundle of bank statements :)
      - djkelly69 on 19/02/2019 - 16:38
        
        @man37: Might also want to look at just borrowing enough to settle on the land for now, and sorting out a construction loan later on.
      - chumlee on 19/02/2019 - 17:18
        
        @man37: $825K loans on your income will is not enough capacity.
        
        Sell the block if you can
  - dcep on 19/02/2019 - 15:41
    
    +5
    
    3) Find another broker
  - HighAndDry on 19/02/2019 - 16:03
    
    +1
    
    Wait - $25k deposit means the land is $250k? With a balance of $225k?
    
    Why not just refi, use that equity and your savings to pay for it?
    - man37 on 19/02/2019 - 16:11
      
      I am really naive in this field and totally relying on Mortgage brokers' suggestions. That's why, I thought of asking ozbargain to get advice from experienced and great people :)
bobbified on 19/02/2019 - 15:20

Are you going through a broker for finance?

Why do you think they're rejecting your application? Income not high enough? Bad credit history?

If you're not already going through a broker, one should be able to find something that suits your needs. The interest might be higher for now, but you can always start with whatever you can get and refinance at a later stage to a loan with a lower interest rate.
Austin 316 on 19/02/2019 - 15:22

+2

Don't sell your current home. As then you will still need to settle the land and pay for your rent plus any interest applicable on the land loan.

Forgetting the deposit might hit you hard initially but if you go with option 2, you will end up forking way more than that.

My suggestion would be to go with option 1.
Seedy seed on 19/02/2019 - 15:23

Try liberty
- mini2 on 19/02/2019 - 16:54
  
  Or Peppers. Just don't expect the mortgage interest rate to start with a 3 or 4.
RM on 19/02/2019 - 15:52

Lenders are possibly thinking how you would essentially pay 2 mortgages along with general living expenses on 1 income until you construct/sell.

Buying an investment property and renting it out straight away - that might be a different scenario as you will have a second line of income.
sweefu on 19/02/2019 - 16:55

Broker here.

There are some lenders that can be more flexible than others, but at the core you need to be able to afford the repayments comfortably.

Does your wife plan on returning to work?

if you would like a second opinion on the numbers I'm happy to run them for you, no obligation to use my services.
- Seedy seed on 19/02/2019 - 21:05
  
  Thats kind of you.
urahara on 19/02/2019 - 17:28

+1

Looking at the property market I would suggest you not to go ahead with the investment property. It will burden you with more risk at a time when you have family and kids to take care of.
Alternatively you can work over weekends to improve your financial situation a bit on papers.
87percent on 19/02/2019 - 19:58

Speaking with a friend who is a lender, she told me that they look at everything you're spending money on. That $4 coffee 3x a day, not good. Oh, you went out to eat at whatever restatement and spent $109, not good
elgrande on 20/02/2019 - 06:57

The challenge you have is not your equity or cash, but your income is not high enough to be lent $825k.

I would try other lenders as suggested.

Can you just buy the block as HighandDry suggested, or are you locked in to build?
- ihbh on 20/02/2019 - 08:10
  
  Can you just buy the block as HighandDry suggested, or are you locked in to build?
  
  Not a good idea. He'd be incurring interest with no income to offset. Market could go sideways or down a bit for many many years.
ihbh on 20/02/2019 - 08:09

You have a serviceability problem. Not enough income to comfortably cover interest, especially if interest rates rise.

Have 75K Cash and 200K equity.

You might also have a security problem. How was the $200k equity determined (e.g. by you, automatic valuation, etc.)? When was it determined (e.g. two years ago at the peak or recently)?
vxblitzxn on 20/02/2019 - 10:41

Serviceability criteria is getting harder. Especially with dependents.
I reckon if you have time left to settle, try and sell it off via nominations and maybe recoup the deposit (or part thereof).
- man37 on 20/02/2019 - 10:47
  
  I can't sell that's a clause in the Contract. I was so naive that I rang my current mortgage consultant in 2017 before buying, and she showed me sweet dreams of buying and making profit. In 2017 I was earning 100K/Year and had around 40K Cash. Now, I earn more and have more cash but banks don't seem to approve loan. It's my bad luck and inexperience. Thanks very much for your valuable suggestions. I won't give up easily. I will keep trying….
  - vxblitzxn on 20/02/2019 - 11:06
    
    Just run the term "nomination under a contract of sale" with relevant parties(legal and/or real estate). It less like a sale and more like passing the contract to another party.
    
    There's quite a few people with pending land titles and for whatever reason, the time comes around, they try to offload it.
diceman99 on 20/02/2019 - 11:02

-1

Pull out the 200K equity in your house say at 5%
Use part of your 75K cash to buy the land. Use $25K to pay off outstanding Land balance. 250000 cost of land -less 25000 deposit - less 200000 equity redraw -less 25000 from cash

land cost (250000)
deposit 25000
redraw 200000
from cash 25000

Total 250000

So Current Mortgage goes from $325K to 525K
Land costs $250K less deposit already paid $25K $225 Owing

So Now you have paid for block of land
PPR Gone from 325K @5% $16250
To 535K @5% $26750

Cash Balance Gone from $75K in bank to $50K in bank interest payments up $10,000, cash on hand down $25K, but you have secured the land.
diceman99 on 20/02/2019 - 11:08

-1

And get a 100% offset account against your current house loan and put all your spare cash into that.
Killerbala on 18/03/2019 - 17:08

Current housing market is in the brink of free fall and it’s been held together because of political reasons. If you look in to the numbers smart investors left the market two years back and most are leaving now. However, if you decide to plunge in to a falling market, you should be able to make sure that you have the power to sail through some tough storms. With the numbers you have provided its going to be really hard. Go and check out DFA channel in youtube to get some actual real numbers and take an informed decision. Don't run with the herd like many. Good luck.
bobby1234 on 18/03/2019 - 17:25

Is the land worth $250k if so then buy it with your current equity and then get a construction loan (https://www.canstar.com.au/home-loans/construction-home-loan…).

They are interest only for the first 12 months and you make staged payments. You will be going backwards fast at the end (interest on two loans) but if you sell your current house then you should be good.

Shop around with the banks yourself and see if one will lend you the money (do this first before you buy the land), we had lots of problems with our bank but other banks were quite happy.

But you may have to sell up and rent while you build. (this is probably safer in some ways)..

Good luck
- mskeggs on 25/05/2020 - 15:43
  
  He wants the new place as an investment, not to live in.
Kinko82 on 25/05/2020 - 21:11

Definitely sounds like a borrowing capacity/serviceability issue. Doesn't matter how much equity you have in your current home, if you don't have the income to meet the affordability requirement, the bank will not lend you the money.

If your current broker isn't clearly helping you understand why you don't meet the bank's affordability requirement, try someone else. Some brokers may tell a client they can't do this or they can't do that, but without clearly explaining the reason behind why, so the client can understand the situation as well.

Losing your $25k deposit might also be an issue- you need to check with your conveyancer or solicitor if there are any other things you'll be liable for.

Contracts of sale for purchase of registered land usually include a clause that states, if you forfeit your 10% deposit, the vendor can take action against you for any further financial losses in the event they can't sell the land, or sell the land for less than what you paid for, interest expenses etc etc.
- man37 on 26/05/2020 - 15:16
  
  Thanks Kinko, this land was settled last year. Now the next challenge is construction :)

Finance Approval - Investment Property

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