Borrowing capacity & unsecured debt

Just converted my PPOR to an IP. Don't have an official valuation but from recent sales data in the neighboring the LVR will be a tad less than 80%. I want to buy another IP in the next 6 months or so. Due to lending restrictions I may have to buy as a PPOR (to get max LVR) and then change it to a IP a few months later.

I lent quite a large sum to family and I've too much unsecured debt at the moment. They are slowly paying it back but it will be another 2 to 3 years before it's fully paid off. I have decent income but don't have much savings. I punched in the numbers in CBA borrowing calculator and it says I can borrow up to $269k but I am hoping for something in the $400k+ range. What are my options?

Can I somehow show that the family loan is being paid back to me at a regular rate and that becomes part of my income or something?

 

The principal on a loan being paid back generally isn't considered to be income by the banks. If they're paying you interest on the loan, this is income but to demonstrate it the only real practical way is to show interest earned via 2 or more years in your tax returns. That also means you'd have to pay tax on that interest of course!

Additionally lenders generally want some reassurances that any income declared will continue for at least 5 years.

 

Will be hard to include the family payment as income - i don't know anyone that'd accept that off the batt (maybe after a few years, if you declare as income in tax returns).

Few financing thoughts:
1. Check borrowing power in more formal sources (broker/banks).
2. Not sure what you mean as you may have to buy as a PPOR - this will typically reduce your borrowing power as there'll be no rental income to use for servicing. This alone should increase borrowing power reasonably substantially. If its for deposits, there's still a few lenders doing 90%+ deals for investment, including CBA (although it will be tricky to get over the line).
3. Perhaps valuer shop your PPOR/IP to extract as much equity as possible. Especially if you have decent income/little deposit.

Cheers,
Redom

 

loan repayments are not income but return of capital. Interest is income - but may not be counted as short term.

 

1. Will do
2. Yes, deposit was the issue but apparently buying the next one as a IP, I can borrow more than $400k. Thanks for the tip.
3. How does one go about shopping for a valuer? I thought my lending bank does the valuation?

 

You shop for a valuer by using a mortgage broker who can source valuations for free via multiple lenders. Essentially multiple valuations are performed on the property by different valuers and you pick the most generous in their estimate.

It does likely mean you'd need to refinance the loan to a new lender. If the loan involves LMI this would get very expensive and the extra equity often isn't worth the costs.

 

Thanks for that, for some reason I was under the impression that all banks use one of a very few valuer companies and the valuations wouldn't change much from bank to bank.

 

Sort of yes, sort of no...

Most lenders put their valuations through a group called ValEx (owned by RP Data). Valuations are then sub-contracted to individual firms. Each of these firms get their information from RP Data of course

This means that ordering two valuations through different lenders will likely mean that you get two different valuers and possibly different results. Ordering 3 or 4 will likely end up with the same valuer visiting the property twice.

My general observation is if one valuation is disappointing, then it's worth getting a second done elsewhere. If that yields a similar result, a third rarely improves the situation.

 

Adding to Peters post, you could also potentially benefit from different types of valuations.

Where possible, utilising a desktop valuation first and comparing it to a full valuation can possibly see quite substantial differences. This is particularly evident in Sydney from my experience. While full valuations are typically more accurate, desktop valuations can often produce better results that may indeed suit your strategy (limited deposit base, high servicing).

 

Just out of curiosity, if the val comes in at, say, $100k and then the property is sold for $110k or $120k would the buyer have any issues securing a loan cause of the recent valuation at $100k?

 

Yes. You don't order a valuation until the purchase price is confirmed because that forces the bank to use the valuation price, not the purchase price (and you'd have to make up the extra $10k in cash).

The discussion about 'valuation shopping' is only relevant to refinances, not purchases.

Valuations are rarely an issue for purchases. 99% of the time the valuer simply agrees with the purchase price.

 

My IP is currently for sale but not many takers at the price I am interested in so I don't mind holding it. I want to see if I can extract equity out of that property while it's still on the market. So, if I get it valued to extract equity and a month later someone wants to buy it at a price higher than my equity-valuation would they have trouble getting finance?

 

@JohnPropChat shouldn't be a problem.

 

Wont be an issue - the person purchasing your property, if seeking finance will likely need to do a valuation. The valuer will use the contract price (99% of the time) as its a more accurate reflection of the market price.