Broker, Loan Structure and DSR

At the moment we are a little confused of where to go and what to do.
Recently I missed out on a deal due to what my current broker states was serviceability constraints. Here is the run down of where we are atm.
1 kid + 1 on the way
85k single income. wife just gave up working for herself due to bub number 2 due shortly.
PPR 470k - 200k debt (I/O) with 100k in offset
IP $420 - 380k I/O - $360 rent /
Currently the IP is cross x with the PPR with the CBA

I have spoken with my current broker I'm almost certain whist he has looked after us and is helpful, I don't think moving forward he is able to meet our goals. After numerous conversations I have established that he advocates cross x for all IP purchases and sees no benefit in diversifying lenders. He sets all his clients up this way and this how he has secured numerous IPs himself.

From all the reading I have done, cross x should be avoided under normal circumstances. Apparently a $350 discard fee can remove the PPR from the IP.

I would like to get an idea of you guys think...what sort of borrowing capacity would be possible with another lender...also happy to take some other general advice.

At this stage I would be looking for CF over CG as negative gearing isn't sustainable in the short-medium term for us.

 

You are looking at $405,000 with a lender like Firstmac. This is assuming that the proposed rental income is at least $400 per week, 80% LVR, existing IP is in your name and you have a credit card limit of $5,000.

Homeloans is another option - get your brokers to run the numbers using these lenders. They do have limitations like other lenders such as:

Firstmac - poor cash out policy and very conservative in application assessment

Homeloans - do not take rental income of existing properties if the property is not tenanted at the time of application.

Having said that those Firstmac to IO 10 years, excellent rates even for IPs and no ongoing fees. Homeloans have a very similar offering.

 

@Shahin_Afarin can you please elaborate on how dependents effect borrowing capacity?

 

Same scenario but if you had one child vs 2 then it would increase your capacity by $70,000.

 

Are you using offset funds for your deposit?

If servicing allows, it would be worth sorting out your CBA loans before going for the next IP, to get rid of the X-coll and turn that deposit into deductible debt instead of non-deductible.

 

Hi Raydar

It's not so much dependents that cause a big hit to borrowing capacity (although they can be expensive!) it's the loss of an income that's the big blow.

Shahin's on the money - you're a prime candidate for using the last remaining "generous" lenders - the ones that calculate your current CBA repayments at actual rather than an inflated amount.

Having said though - have you considered what you can actually afford rather than what a bank is willing to lend?

Cheers

Jamie

 

If its just serviceability stopping you, hit up Homeloans Classic or FirstMac. If its other parameters, may need to reassess.

You may even be able to go to NAB (haven't ran the numbers), but it could be the starting point before looking at the two mentioned.

With the Classic, you'll need to have a good credit history, as its credit scored by the insurance company who underwrite the deal. Too many applications over the course of the last 6-12 months will hurt, and if you've shopped around during the APRA changes (many have!), you may have issues. Other than that, servicing should be reasonably similar to Shahin's numbers, as the calculators are reasonably similar.

Will also need reasonably strong employment (generally 6 months/12 months+) too.

Cheers,
Redom

 

We aren't that far ahead in our thinking. I would always prefer the cash in offset against our PPR.
When you say "if servicing allows it", how would you turn the 100k into detectable debt? I'm guessing this is the extracting equity process? A separate loan tied to the PPR?

 

Ideally you'd deposit the offset funds into your PPOR loan, and redraw in a new loan split.

End result - $100k of non deductible debt is now magically deductible

 

Thanks for the comments Jamie. If only we didn't have to go from dual to single income, that's the price of starting a family I only wish we started our investment journey earlier rather than overseas trips and other luxuries.

I totally understand what you mean by what we can afford. I have no intensions of appearing on season two of struggle street. It's more a question of what lending is available and being too make an informed decision regarding the next IP. Not so much, how much can we spend.

 

Nothing wrong with spending money on travel

If you feel you can afford to take on additional IP debt then hit up Shahin who's provided good advice above. If anyone can get it done- I'm sure he can.

Cheers

Jamie

 

If it doesn't fly with the classic it might work with the Accelerate product - not scrutinised as harshly but it's a more expensive product.

Homeloans must be getting a fair bit more business these days.

Cheers

Jamie

 

I've found them to be brilliant, great team, logical credit assessors and some very pleasant broker experiences - they've pulled rabbits out of hats for me, have had an urgent pre-approval approval done within a three business hours for a client with 16 properties (admittedly they had just financed no 15.).

They've also done a resi cashout deal for a client coming back from mat leave to a new casual employment contract that had yet to begin (!!!)...i still don't know how that flew by, but i find they're very flexible and know how to get deals done.

Something not talked about much, but its useful to have options up your sleeve if you're a high risk investor looking for some common sense approvals.

How long the sauce lasts though...

 

Thanks for all the comments and advice. We will see where we go from here.

You would do this and sit it in an offset account until you use the cash?

 

No, I'd leave the cash in offset until a few weeks before you're ready to buy, then deposit into your PPOR, and split and redraw from there. Which lender are you with? You'll want to be sure of their split procedures before going ahead. If you have a broker, get them on board for assistance.

 

Thanks Jess, currently with the CBA.

 

Easy, should be just a form.