5 Strategies for those who Bought but cannot get finance to Settle

Strategies for those who Bought but cannot get finance to Settle


Many people buy properties that they cannot afford. Some are just silly, others think they can easily get a loan but find out they can’t – some of these say “but I have $1mil equity” to no avail, others buy off the plan but circumstances change and they cannot qualify for a loan.


In these situations they purchaser will likely lose their 10% deposit and possibly be sued for more. If the property has gone up in value they will lose this capital growth as well.


So what can they do?


Several things can be done including:

• • 1. See a broker

No point in panicking yet, see a broker to make sure that there are no possible lenders out there.

• • 2. Put a Spouse on the Loan

Spouses can often go on the loan even where they are not owners of the property being purchased. Most banks are fine with this and it would be a simple solution. Once the owner can service the property it would be best to remove the spouse from the loan to reduce risk and preserver the spouse’s borrowing capacity.

• • 3. Nominate a Spouse as Joint Purchaser

Probably this one won’t change much as spouses can usually go on loans even where they are not owners to the property.

• • 4. Add another purchaser

This one may cost stamp duty at ad valorem rates, but this can be minimised by limiting the amount of ownership of the other purchaser. An example may be 1% or 10% ownership, depending on the lenders requirements. The other purchaser’s income can then be used for servicing. Their whole financial position will effect servicing – debts and all.


Example

Bart has signed up for an off the plan property in Sydney. He thinks it will increase in value before settlement in 2 years so doesn’t even consider the fact that he is not working as being an issue! “If I have equity they will lend” he says to his dad!



Later he finds out he does actually need an income to get the loan.



Luckily Bart’s dad earns a large sum of money by working for the local nuclear power plant. So Bart asks several lenders if his dad can give a guarantee – ‘nope’ is the answer he must be an owner (direct or indirect) to give a guarantee for servicing. He asks if dad could go on the loan ‘nope because he doesn’t own the property and he won’t obtain a benefit’ he hears over and over again.



Settlement is rapidly approaching. Bart talks to his lawyer about putting his dad down as 10% owner – this is done and a small amount of extra duty is paid.

They both apply for the loan and it is approved. After settlement Homer, Bart’s dad encourages him to get a good high paying job and then when Bart is able to afford the loan on this own Bart buys Homer’s 10% of the property and gets the loan in his own name. This will trigger stamp duty and CGT but it will be minimal.

• • 5. Change to a company as purchaser

Potentially only nominal stamp duty on this one is some states.

Nominate a company to settle – transfer by direction actually. A company owner allows for ease of finance in 2 ways

- Additional directors can be added so as to improve servicing, and/or

- The NCCP does not apply to company borrowers.

No doc finance is available where the borrower is not a natural person so this can mean the company could obtain finance where the individuals behind it could not. One lender will go to 65% LVR and it may even be possible to get up to 80% LVR on a no doc basis.


Seek legal advice before trying this at home.

 

Another option would be to also look outside the square for loan product... RAMS low doc.

 

Yes - but the first point covers this.

 

Option 4 may stuff up many an well - if you're using the fhbg or stamp duty concession for fhb, you may lose the extra $ if your borrowing partner has previously owned property.

 

Nominate another purchaser. @Terry_w can you comment on onselling property? Both for established and OTP. I have lots of enquiry about purchasing OTP by way of nomination, with a higher price than the original.

 

Good one Tobe

6. Onsell.

Yes it is possible to onsell before settlement. Usually both pay stamp duty, but in VIC i think the rules may be different to most states.

 

This is something that they need advice on. It may still be better to lose the FHOG and keep growth plus avoid losing the 10% deposit and being sued.

 

How about rethink your loan purpose @Terry_w.
Someone could be purchasing an owner occupied but cannot service that debt.
The option may be to purchase it as an investment and utilize the rental income to assist in servicing.

You would need to factor in ongoing rent but if it's cheaper than the rental return OR better yet suck it up and move back into home with the folks. Some lenders are still allowing rent free! Others are $600 a month.

If your a FHB you still qualify for your next purchase or if your circumstances change within the first year you can try and boot your tenant.

 

Neat post.

Much of this will depend on 'why' you can't settle. E.g. got one on my plate where its serviceability related for a loaded up construction @ a high LVR. Few ways out of this pickle (drop the luxuries, throw in more cash, bring LVR down and go to higher servicing lenders, etc).

I think much of this is captured in the first point though - go see a broker/banker.

 

Good point Redom. If the original purchaser has a blemish on their credit report adding another buyer may not help.

 

With regards to tip 2 - how does this work? and how do I go about this? Do I just ask the bank if they would consider adding my spouse on the loan for x amount?

• 2. Put a Spouse on the Loan

Spouses can often go on the loan even where they are not owners of the property being purchased. Most banks are fine with this and it would be a simple solution. Once the owner can service the property it would be best to remove the spouse from the loan to reduce risk and preserver the spouse’s borrowing capacity.

 

Check to see if they help borrowing power first (otherwise it’s no benefit). I.e they earn income and their addition helps borrowing power.

You can then ask the lender to add them as an applicant. This will involve collecting her docs too (ID, income).

 

Yes. You and spouse just apply for the loan. Before formally applying make sure they will consider it.

 

By doing this, would the bank allow me to access equity in PPOR under spouse’s name? My situation is that I can easily service the loan, but I just need the equity in our PPOR under partners name to use for deposit.

 

You could potentially borrow against a spouses property but they would either need to be a borrower or a guarantor.

 

In either case, could I remain the sole owner?

 

there is no need to change ownership.