LMI prepaid?

Hey team

Have a friend i was speaking to on the weekend.

They are seeking to get into the property market have
$110,000 k savings
Gross income around 250-280k household. No store cards no credit cards no debt currently they are renting for $900 per week.
3 dependents

Seeking to buy a place $1.5 million

I was told that their broker is advising LMI needs to be paid upfront and cant be absorbed and paid in the loan.

Is this correct?

I have not had to pay LMI so not sure. My understanding was the amount gets added to loan and than paid off .


Can I have some solutions if they can borrow amount needed.

 

It might be the case - normally, LMI can be added on but once stamp duty comes out his deposit might be too small to allow it to be added. Lenders only will add it on up to a certain LVR. There are a couple that add it to 99.9% but without doing the sums and assuming the other broker is correct, it looks like the LMI might make it over 100% LVR.

A guarantor would help reduce the LMI if that's an option for your friend?

 

Some lenders (with the big one being NAB retail) don't allow for LMI to be capitalised.

The issue is going to be the LVR and loan amount combo.

So if the LVR is above 80% AND the loan amount is above $1mil is highly unlikely that credit will approve. It would need to be a very strong application for them to consider.

This doesn't include the medicos, solicitors and other professionals which are immune to the policy.

 

Duty/costs alone would be pushing $70k

That leaves them with $40k left over from their savings which is a 2.6% deposit.

They will need to revise their max purchase price down by quite a bit or save a lot more.

Cheers

Jamie

 

Thank you A team.
Will advise.

 

@Jamie Moore what about an interest-free 95% balance transfer on 2/3 cc with a total limit of 50k, to get some extra cash for deposit?
will the family income of 280k with cc limit of 50k still allow them to get 95 lvr loan on a 1.5mn property?

 

hmmm...

They managed to save less than 5% deposit whilst renting at $900 a week in rent. If they had a loan of 1.5 mill then their repayments will go to over $1600 per week. On top of that they will also be paying rates and also a little more in bills (sewage etc)

Throw in a small rate rise or two and the combined weekly cost including rates will be over double their current rental costs. Of that $110k deposit, I hope that's it's currently increasing at rate of at least $900 per week.

An LVR that high also seems risky if their was any chance of a property price drop

 

Highly unlikely - I personally wouldn’t touch a deal like that if it was possible. Sounds like a recipe for disaster.

Cheers

Jamie

 

hmnn...
is it because it will limit their borrowing capacity to less then what they like to borrow or is it because of ones inability to repay BT money back in time to avoid monstrous IRs?
or something else?

I personally use BT quite often, every year upto 100k limit in 4 cc (in family), and park 95k of interest free money in offset account, repay it a month before expiry.
Am I doing something disastrous for my credit rating without realising?

 

If you're doing multiple credit cards every year might have impact...

But borrowing money on multiple credit cards for the deposit to get a 95% loan... yuk!

 

Most of my cc is with anz, once I have repaid past BT, we ask for new no fee BT on existing cards and they give it for another 12 months.

I get auto update every month from veda, there's nothing in that, score is in 'VG' range,
I am very curious now, what am I missing?

 

Its an 'Interest free' 'no fee' money, ST George even offers it for 18 months, if you have an capacity and discipline to pay it back in time what's the harm?

 

Because you're looking to purchase a property, borrowing at a maximum LVR.
Would like to see the capacity and discipline to save the deposit prior, rather than a cocktail loan.

 

Most lenders specifically don’t allow borrowed funds as deposit. And most personal loan lenders specially don’t allow personal loans for such a purpose.

 

It's because they'll be up to their eyeballs in debt in a market that's possibly retracting.

If someone wants to buy a $1.5m property that's fine - but I'd want to see that they've managed to save the appropriate deposit/costs to do so.

Buying a $1.5m property on the back of credit cards/95% home loan reads like an ACA episode. There's a good chance it won't end well.

Cheers

Jamie

 

thanks Jamie

 

Unless you are a medico, a 95% loan over $1mil is not going to happen. Credit scoring will spit that out real quick.

 

save more or get a guarantor