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95% LVR: Could we? Should we?

Discussion in 'Property Finance' started by PurpleTurtle, 11th Jan, 2016.

  1. PurpleTurtle

    PurpleTurtle Member

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    Hi all, I'm new around here, and have an abundance of beginner questions on top of what I'm learning by trawling through the forums. Hopefully this is a simple one.

    Is it generally possible to get a 95% lvr loan for an investment? Even if it is possible, is it worth it? Or are you generally better of saving longer to get to 90 or the 88% sweet spot I've read about?

    Bonus information: My wife works for a bank and has heard something about employees being able to avoid LMI, but we're not sure yet if this applies across the board or if an investment loan at 95% would fall outside that benefit.

    Any feedback would be appreciated, thanks :)
     
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  2. Redom

    Redom Mortgage Broker Business Member

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    Heya, generally best to get it down to 88%, or below 90%.

    Here's a few reasons why:
    • Its generally quite difficult to get 95% investment loans from an approval point of view. Your lender choice is very limited, there aren't many operating in this space anymore. From memory, CBA and Liberty are a couple of the very few options. Even then, getting approval is harder yet - needs to be a very strong deal.
    • The cost of LMI makes a 95% investment deal quite difficult to stack up. Its about 3% of the purchase price, depending on the loan amount. That means you're effectively getting a 92%+LMI deal. The cost of LMI effectively halves if you provide another 4% of funds and bring it down to 88%.
    • Your partner may be eligible for a 90% no LMI deal.
    Only time it may make sense is you find a superb deal and its the only way to fund it (i.e. you can't get deposits elsewhere). E.g. if you purchased in Sydney during the boom periods, getting in 3 months early could've got you 50k+ gains, which would dwarf the additional cost of LMI. Back then it was a little easier to get this type of loan (still very difficult).

    Cheers,
    Redom
     
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  3. charpj

    charpj Well-Known Member

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    Hi PT,

    Welcome. Yes there is quite a few lenders that will do 95% LVR for investment (this will include cap LMI) so the LVR exc LMI would actually be 93-94%

    Regarding your savings and goals, that is something only you can answer. Have you done a budget to work out how long it would take to save the difference? (to avoid LMI) Will that take months or years to save? Does that match your investment goals?

    That is correct, many products will allow 90% no LMI (doctors, bank employees etc) - but not to 95%.

    Jeremy
     
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  4. PurpleTurtle

    PurpleTurtle Member

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    Thanks for the responses @Redom and @charpj, that's super helpful.

    We're looking at saving towards a 400k property, saving the extra 5% (20k) will add a maximum of 8 months (maybe less) to our timeframe. It sounds like it may be worth it, particularly if we can avoid LMI altogether at that point.

    As a follow on issue, can someone tell me (or point me at a resource) to make sure we're saving all the costs needed?

    Obviously 10% deposit (40k)
    Stamp duty (around 20k)
    Conveyancing, advertising for tenants etc? These extras are what I'm not sure about.
     
    Last edited: 11th Jan, 2016
  5. Redom

    Redom Mortgage Broker Business Member

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    You've got most of it there, assuming you don't have to pay LMI with your partners job offer.

    Add in a few thousand for the extra costs and a small buffer (~5k will do).
     
  6. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    If your wife works for the bank, go for a 90% lend. You won't pay any LMI so the cost benefit of 88% vs 90% is irrelevant. Given the cost of LMI above 90% you'd only save about 1% - 2% by borrowing more anyway.

    Borrowing more than 90% you'll find that the cost of LMI increases significantly, the premium goes from about 2% to as much as 4%. For an investment you're not actually saving 5%, it's as little as 1.5% in the extreme cases (best case benefit is holding about 3.5%). Given the combination of extra LMI cost, interest rate cost and extra difficulties in assessment, even without the staff benefits I think it's rarely worth going above 90% if you've got the choice.
     
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  7. Be Developer

    Be Developer Property Developer Business Member

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    since LMI is waived, it all depends on strategy,

    what is your next move?
    do you have enough cash to buy next one?
    are you chasing yield or growth or both?
     
  8. PurpleTurtle

    PurpleTurtle Member

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    @Be Developer
    1. Next move will be putting more money aside in some other investments and towards the next deposit.
    2. We won't have cash for the next deposit. Will depend on more saving or waiting to build equity in the first property.
    3. Good question that may need more consideration and education. Both I guess. Long term would like several properties towards financial independence. So we need growth, but yield makes for better cash flow right? Honestly, I need to learn more about how to answer this question. I have a lot to learn while saving the deposit!
     
  9. Be Developer

    Be Developer Property Developer Business Member

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    decent yield (Around 6%)with room to manufacture growth or strong indicator of organic growth seems to work well with property investors!
     
  10. albanga

    albanga Well-Known Member

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    If you are concerned about the time it will take to save a deposit, have you considered a guarantor loan? Perhaps your or wives parents would be willing to put up there house for security?
    If your handy then perhaps you could buy something run down, do it up and see if you can get it revalued and then release them from the security?