Hi, just have a hypothetical question I was hoping someone can assist me with. I currently have a PPOR, but looking to upgrade and sell the property to access additional funds to buy another PPOR. As an example, say the bank has pre approved me for $1m mortgage if I keep the existing property, turn it into an IP and rent it out. However if I sell and have no debt, the pre approval would be approx. $1.3m, however if I sell I could purchase a home around $1.6m house value ($0.3m cash profit and $1.3m mortgage). Say we were to buy first given we don't want to sell then be looking for potentially 6 months for another PPOR, would a bridging loan ever consider $1.6m loan allowable even though I don't have the $0.3m cash until I sell my current property? Any advice for this or do people typically sell first to have cash in bank?
With bridging loans they will generally lend based solely on the end debt - as if you had already sold the current home.
At 80%, with a buffer based on their valuations/expected sale price, and including 6 or 12 months capitalised repayments. So $300k/$1.6mil wouldnt quite work as bridging or even if you sold first most likely.
Bridging can be done with LMI with CBA - I've just approved one this week, will be settling in coming weeks. - Need to be able to afford the end debt, if you can't... no deal. - Bank will only calculate 90% of the bank valuation for debt reduction, allowing for fees, market/price reduction - You will need to have cash buffer to cover the shortfall during the bridging period, when borrowing >80% this cant be from borrowed funds/capitalised - Noted when LMI is used the end LVR must be lower than the original LVR.
Lmi charged on peak debt @Brady? Cba and the big four have odd rules around having funds to cover shortfall during peak debt. There are a few others who simply capitalise the peak debt, therefore bringing the lvr back off their valuation (5%). Having to show a cash buffer and having a reduced val/lvr seems like two bites of the same cherry, but that's what banks are like.
Yes and no it's a pretty risky situation, don't want to get it wrong and have the banks selling up both properties. This is the first LMI bridging deal I've done normally look at other avenues, but this was a referral from a REA after another bank/broker stuff the client with finance and now they're locked into the purchase contract and don't want to miss out on the property. Yes sorry that was the other major dot point I was trying to recall, someone came into my office mid post. And the LMI is a big kick as it's on the peak debt (x-coll) so it can come close to killing the deal with the reduced val. Cash buffer required for any bridging shortfall for servicing. Reduced valuation required to ensure LVR doesn't increase.
Furthermore this is changing shortly where you can have LMI up to 90% during bridging but post bridging needs to be 80% which really would be pretty rare.
Its crazy to pay LMI on the peak bridging debt IMO. If you don't have the equity simply don't do it or sell first. Id have trouble giving that one the "not unsuitable tick" yet the client has already committed so what is a banker / broker to do?
The client should be reporting the original broker at the least and claiming on their insurance or sueing them.
@Marty McDonald completely agree, not the best situation to be in. In that situation should really be looking to sell first, work out what the house is actually selling for and work on a delayed settlement period or at least some sort of temporary living arrangement to make the transition. LMI ended up being ~3% of the END debt. @tobe not much can be done, broker/banker said didn't know that BankSA wouldn't do the bridging with LMI. Then pretty much just left the client hanging after that... too hard basket.
