Advice on restructuring home loan and turning it into an investment property

Our current principle place of residence has $240,000 owing on it. We went to the bank and told them that we wanted to use the equity in there to put towards a new home and then turn that into an investment property.

The bank did an evaluation on our current principle place of residence and it came back valued at $370,000.

The bank then said that we can only use up to 80% of the equity in there because that was their lending criteria when turning our principle place of residence into an investment property. We wanted to use either 90-95% of the equity in our current home to put towards a deposit+cost of our new home and can not afford a new home if this is the bank's lending criteria.

Is this a new thing by the banks (or it it just this bank) where they will only allow you to use up to 80% of the equity in your existing home towards the purchase of a new home? Where can we take our business to if we want to use 90-95% of the equity in our existing home for the purchase of a new home and then turn the existing home into an investment property?

Thanks in advance.

Andy

 

The odds of you getting cash out to 95% are next to nothing unfortuntely. I think your best bet is going to be seeing how much you can get via a great valuation rather than trying to leverage up so high in this environment.

Which lender are you with? Some may let you go up to 90% if it's a really strong application but it's not a given anymore.

 

Thanks Jess. We are currently with the Bank Of Melbourne.

How do we get a "great valuation"? Not sure what you mean there sorry. The bank already did their valuation on the property and it came back at $370,000.

 

Valuations can vary significant between lenders, for eg one of my clients was going to go for a 90% lend with Bankwest and ended up at 80% at cba using a desk top valuation. This saved him thousands in LMI alone, plus better pricing due to lower lvr.
So even though BOM gave you $370k valuation, other lenders may price it much higher, saving you lmi and giving you more accessible equity to use for your next purchase.

 

I think you have been incorrectly advised. If you are living in the property at the time of application they should be applying owner occupied policies ie. cash out at 90% plus cap.

I.e $333,000 plus cap lmi ~$7k. (cash out of $93k)