Borrowing to buy.

Hi guys.

So i went into buying a house with a mate. Reasons being he needed me as a solid proof of income (he was self employed cashy) and I needed him as I had no money for deposit which he had.

Now we renovate that place and sold for a tidy profit. As I had a lot of debts I used my share to clear all the debts I had.

So my friend has moved on and I'm left without enough for another deposit. I would love to buy another fixer upper and redo, I am quite handy and as I work in construction can get a lot of materials free or heavily reduced.

My question is. Is it wise to take out a personal loan to cover the amount for the deposit. I have worked it out that for the price range I'm looking at mortgage repayments plus loan repayments is slightly less then what I pay in rent at the moment.

My thinking is as long as at the end of the day as long as I sell it for no less then I bought I break even.

Is this a legit way of doing it or have I overlooked something blindingly obvious.

Any thoughts

Cheers Cain

 

If you can get a parent to guarantee your loan, you should be able to borrow 105% and therefore not require a personal loan.

 

If you don't have enough for a 20% deposit you can put in a lower deposit and pay LMI. The amount of LMI will depend on how much you borrow and what LVR you borrow at.

 

Have you addressed the cause of all your past debts? Will that happen again?

 

A personal loan carries a higher interest rate and will also affect your serviceability of the mortgage.

However LMI may cost you an additional $10k on top of your mortgage.

If you're flipping the property the additional cost of LMI will outweigh the cost of interest on the personal loan.

Look.to your broker and accountant for the best way forward.

Also consider whether you have to allow for CGT on the sale.

 

A family guarantee is your best bet in this situation. Perhaps if you clearly outline a strategy to them, all costs involved and when they can expect to be released from the mortgage they may be much more willing.

If you can flip one in 6 months and it's profitable then that should cover your next deposit and then your on your own.

 

Here is a basic LMI Calculator I put together. Hope it helps you out.

Enter the house value into B1 and the deposit percent into B2 and the LMI will be calculated for you in B3.

 

Apologies there was an error in the last sheet, this one works.