FHOB here, can you still do 10% deposit IO?

Hi Guys, i'm just wondering if given the above, as a fhob with a graduate job (salary of 50-60k), is it possible to get a loan of something like 400k with a deposit of 10%? I have no debt apart from HECS.
Or does the deposit not really matter, any my borrowing is purely based on salary?

 

Do you have a partner? I doubt you'd be able to borrow 400k on your salary alone, regardless of deposit

 

You can get a loan with 10% deposit but as mentioned above servicing may be an issue.

 

The IO part could be interesting in the near future. Today you can get an IO 90% loan. Next week the answer could be very different.

 

So if i were to apply for a (360k) loan as an investor, the servicing issue wouldn't be too big (assuming I am receiving rent), would I be able to get a 90% loan?

 

You need both, but obviously if salary requirement for serviceability is not met, then deposit doesn't matter.

As I understand it

60k salary = $4k/month after tax
Subtract cost of living (2-2.5k/mo) = $1.5-2k/month

400k @ 7.25% = 2400/month -- and you are already over
290k @ 7.25% = 1750/month -- so maybe that (?)

If you are renting it out instead of living in it, then you have to factor in income of 80% of the rental income and you can borrow more in that case.
But you also have to subtract your own rent payments from your income, so that will bring it back down.

I am only repeating what I have heard.
If anyone else can verify or correct this, would appreciate it.

60k salary = $4k/month after tax
Subtract cost of living (2-2.5k/mo) = $1.5-2k/month
If you live with parents, no rent (yay), otherwise subtract rent from 1.5-2k before going on

360k @ 7.25% = 2175/month
if 4% yield, 80% of rental income = 960/month

So looks like would be ok - depending on your own rent payments.

Again ... hopefully someone can point out any errors.

 

@Anthony Brew the figures are probably a bit fuzzy and can vary from lender to lender, but the fundamentals are there. Nice job.

For what it's worth, $60k would service a $360k loan assuming no other debts or credit cards. I've only done a very quick analysis, the HECS debt might become a problem, but there could be a deal here.

 

If you can't afford P&I, then you can't really afford to buy properties.
IO is risky, yes it popular and in fashion that because properties been going up for the last two decades and it may or may not repeat.

Consider a scenario where you maybe out of a job for a few months or properties price down
or without a tenant for a few months or downright unlucky a combination of that thing happen to you, then you are looking at some serious financial problem.

there has been an increase in IO loan in the last few years and that usually indicates the market is overheating and it attracting speculators and they gamble that they can make a few buck from capital gain.

I watch the margin loan number in the stock market
when I see the spike in margin loan in the stock market it usually tells me the market is overheating and punters are moving in and I am slowly cashing out and the punters can have my shares with their borrow money, in the near future I can buy back from them 30-40% discount.

Properties is a slower moving beast unlike the stock market fast and furious but that doesn't mean it carries any less risk.

When you buy properties without much margin of safety and decent financial backing to ride out unfortunates events and market risk you are not investing you are gambling.

 

sweet thanks for the advice guys, and I will definitely keep that in mind Pands.

 

A bit too difficult to say whether you'll be able to borrow x amount with salary information alone, but others have provided reasonable estimates of where you could go.

Re I/O - last week the answer was yes. I suspect that will change over time, 90% I.O loans are exactly what APRA's latest guidance was telling banks to look into more thoroughly and reduce lending too.

 

If the borrower was renting instead of living with parents what would be the minimum yield required based on low salary and $250 rental expenses per week?

 

Talk about an open ended question - not even an estimate of income. Don't rely on numbers spouted on an internet forum - speak with an investment focused broker who can run your numbers and give you an informed opinion on the options available to you. Also never think it's wasting their time (i hear this a lot from younger people unsure that they can borrow)- we like doing these.

 

Should have clarified. Interested in what yield OP should be chasing.

 

Skankiedoodle, I'm in a similar situation, but with a larger deposit and slightly higher base salary. I'm no expert so take my advice with a grain of salt...

I think it's best to visit a mortgage broker (they are free) and just run through some scenarios and get them to get a pre approval with a lender (which lasts for 90 days). When we were running through my scenarios, not many banks would allow interest only on my circumstances (especially with a 10% deposit). To get the best deal with the lowest interest rate, generally speaking (in my situation), you had to do interest and principal with a deposit >15%. Also keep in mind, if you visit a mortgage broker, they will talk a lot about loan to value ratios and lenders mortgage insurance. If you have a deposit of 10% the lenders mortgage insurance can become pretty expensive.

 

Hi Lez thanks for the response, what kind of LMI were you looking at given your situation?

 

88% LVR is usually the sweet spot (LMI can get super expensive beyond that point).