Basic loan question

Discussion in 'Loans & Mortgage Brokers' started by Vishh, 8th Jul, 2019.

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  1. Vishh

    Vishh Well-Known Member

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    Hello Everyone,

    Probably a dumb question. If I am buying a property which requires a bit of renovation of around 30k, will the bank give loan for purchase & renovation together or do I need to take personal loan for renovation. I heard mixed opinions from friends so far.
    Any recommendations.?

    Thanks,
    Vish
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    banks will only lend you up to 90% of the value of the property.

    So if you have large deposit you could either borrow 90% and use the property for the reno or borrow say 70% and another 20% for the reno.

    If you had other property you could borrow against that though.
     
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  3. Redom

    Redom Mortgage Broker Business Plus Member

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    Bank will lend against the current value of the property. This often leads to a personal loan solution for those looking to do a small reno. Once the reno is complete, and the value of the home is higher, then often the personal loan is repaid via mortgage debt. I.e. tapping into the increased equity/value of your renovated home to repay the personal loan.

    Example numbers:
    Buy: $800k
    Deposit: 20%, 160k
    Bank will fund: $640k
    Reno cost: $30k
    You'll need: $160k + funds for the $30k here (or a personal loan).

    Reno cost comes out of pocket or via a personal loan. You can also choose to provide a smaller deposit and obtain a higher LVR loan that usually incurs an LMI fee. Often for higher value properties, where the LMI fee is sky-high, obtaining a personal loan and repaying it later is the cheaper solution.

    There's also scope to lend against the 'future' value of a property if your doing a very big renovaiton (structural) and set up a fixed priced progress payment build contract. This is usually a lot more than 30k and is often a lot of hassle (usually preferred to be avoided if possible). I.e. a valuer will go in, value the property as if the Reno's complete (look at plans) and then lend against the future value post the big Reno.
     
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  4. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    If you could provide some numbers we can provide some specific guidance, assuming that serviceability, credit and valuation all come up ok

    ta
    rolf
     
  5. Vishh

    Vishh Well-Known Member

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    Thanks a lot. Correct me if I am wrong.
    So that means if I am buying
    Property : $680k
    Deposit : $130k
    I can get bank loan of $600k ( 90%)

    That will enable me to do renovation of around $50k as well.
     
  6. Vishh

    Vishh Well-Known Member

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    Thank you Redom.
     
  7. Lindsay_W

    Lindsay_W Well-Known Member

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    Yes but only basic figures have been used here - don't forget your State Charges (Stamp duty etc)
     
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  8. Brady

    Brady Well-Known Member

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    Are you planning to live in the property or investment?
    As you could borrow up to 95% including Lenders Mortgage Insurance (LMI)
    In saying that it's usually only around 92% + LMI
     
  9. Vishh

    Vishh Well-Known Member

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    It is for live in. But ING personal loan seems cheaper option than LMI
     
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  10. Vishh

    Vishh Well-Known Member

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    Sounds good. So..
    Bank will pay 90% of loan. $600k
    I have to pay 10% deposit + LMI + stampduty + renovation cost = $130k

    Then I will have to shelve out around 12k towards LMI, whereas by taking personal loan, I have to pay only 2.5k for a year. :)
    Personal loan seems cheaper
     
  11. Lindsay_W

    Lindsay_W Well-Known Member

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    Well your figures aren't quite right, depends on if you're using 90% LVR including LMI or 90% PLUS LMI.
    If 90% PLUS LMI then the figures would be more like below;
    If the purchase price is $680K
    90% LVR = $612K Loan
    $612K + Approx $14K LMI as a rough guide (varies depending on the lender)
    LMI gets added to the loan, doesn't come from your $130K savings and is repaid over a 30 year loan term at the home loan rate.
    The above means you have to pay;
    $68K Deposit + approx $26K Stamp Duty (if buying in NSW) = $94K not including solicitor/conveyancer fees or application fees.
    This would leave you with $36K to spend on the renovations from your $130K savings....

    Definitely check the effect the personal loan has on your home loan borrowing capacity first - personal loans have shorter loan terms and that means higher monthly repayments which can hurt your borrowing capacity and possible mean you won't qualify for the home loan - if the impact on borrowing capacity is negligible then go for it!
     
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