PI Loan using home equity...first timer

Discussion in 'Loans & Mortgage Brokers' started by Prospekta.mf, 11th Jul, 2019.

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  1. Prospekta.mf

    Prospekta.mf Member

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    Hi there,

    I'm a potential first time investor, looking at using my home equity (approx 250k) to buy my first IP, I'm planning that my first IP will be around the $400-450k price range. I'm a little overwhelmed with the amount of information out there and would like some help.

    I was recently reading that although you can use your home equity as a deposit you must also prove real savings of around 5-10% of the proposed purchase price ?

    My plan was to use my home equity and actually borrow a little more than the value of the property, say 5-7% on purchase costs and a $10-15k buffer/offset to cover any initial repairs and or vacancies over the first 12 months or so. With an IO loan and neg gearing calculations I'd expect the property to cost me very little (< $30 week after tax considerations).

    Am I anywhere near the ballpark here ? Thanks in advance.
     
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  2. Lindsay_W

    Lindsay_W Well-Known Member

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    Depends on the lender, some have a genuine savings requirement some don't.
    Depends on the LVR of the Investment loan as well, if only securing 80% LVR against the IP with the remaining 20% coming from your PPOR equity then this most likely won't be required.
    Be careful not to cross collateralise the loans as well.
    My advice would be to speak to a good mortgage broker who can explain this and use real figures relating to your actual situation.
     
    Last edited: 11th Jul, 2019
  3. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Hi Prospekta

    welcome to the PC community

    Sounds like you have worked hard to build that equity

    whats your goal ?

    One IP or a portfolio of a few ?

    ta
    rolf
     
  4. Prospekta.mf

    Prospekta.mf Member

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    Thanks @Lindsay_W for your speedy reply. I'll schedule a meeting with a mortgage broker and see what I am up for.

    @Rolf Latham , my plan is to buy three IP's in the next three years, the first I'm looking at already, 400k in regional NSW, the immediate area appears to be undergoing fairly rapid gentrification. Older style 1940's house, ideal for a cosmetic reno in the next 5 years which may squeeze some extra equity out of it.

    My plan is to hold all three IP's long term with main goal being capital gain, negatively geared for first few years. I have three daughters and hope to help them into the property market when the time comes.

    I've got to say though, reading through some pages on this forum and others I'm a little concerned about the immediate future of property market. A lot of doomsayers sprouting 40% falls etc with worlds highest personal debt levels, stagnant wage growth and possible looming recession....my feet are getting a little chilly.
     
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  5. Propertunity

    Propertunity Well-Known Member

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    Going against the crowd (of non-achievers) is the first test you have to pass.......there are many more, if you want to rise up above all the negative Nelly's and achieve some degree of financial independence.
     
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  6. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Those are good goals.

    Its important that you build your finance structure around achieving those goals, rather than the " next deal"

    ta

    rolf
     
  7. Jess Peletier

    Jess Peletier Mortgage Broker & Finance Strategy, Aus Wide! Business Member

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    Welcome to the forums!

    Just a FYI - if you're planning to rock up to your local corner broker, something to keep an eye out for is that most brokers (and pretty much all banks) will use your current property as security for your new purchase. This is called cross securing - you may have read about it in your travels. :)

    If your broker suggests this loan structure, please race back to this forum and choose a broker who is active here - we all understand the best ways to structure lending for long term success, where many brokers simply aren't aware of the risks involved due to them being more active in home-buyer market or being ex-bank where x-coll is standard procedure.

    Good luck! :)
     
  8. Prospekta.mf

    Prospekta.mf Member

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    Thanks @Jess Peletier , Now I am confused lol, looks like I have a little more to read about.
     
  9. Synergy

    Synergy Well-Known Member

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    I got a equity loan with nab and used it to buy a IP but the new mortgage is with westpac. You dont want to stay with the same bank.
     
  10. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    depends a bit, id say thats a personal thing rather than prudent risk management per se,

    Avoiding a cross certainly is prudent.

    Splitting banking in that way is great to separate risk from say business banking, but ultimately buys one a max of 90 days if one bank wants to get at the others equity or force a sale via a judgement

    ta

    rolf
     
  11. Harry30

    Harry30 Well-Known Member

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    A reckon there is another benefit in not crossing.

    In my earlier years I crossed, but it got increasingly hard to explain the loan arrangements as I grew the portfolio. Broker would ask, what does the mortgage cover. Oh, property A is secured against property A and B, property B has loan A and loan C, blah, blah, blah.

    As I grew the portfolio, I got sick of explaining things. It slowed everything down. Complexity is not your friend. Keep things simple. Property A is secured against loan A, end of story.
     
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  12. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    That wouldn't apply to you :)

    You have $250k equity in your current home - you won't need to demonstrate that you've saved a 5% deposit.

    Cheers

    Jamie
     
  13. AJP

    AJP Well-Known Member

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    I can see how the equity loan is a good strategy to avoid crossing, however it is an interesting one for me

    It's become standard practice at Top 4 banks to dig deep and ask what the purpose is for borrowed funds (in order to classify the purpose of the increase itself under the NCCP regulations), if there is any hint that the funds would be used as a deposit to buy an investment property then they require you to also complete an AIP for the purchase itself to ensure you can service the proposed purchase + equity release.

    My question is, has anyone been through this process as recent as <12 months - if so, how did you go about doing this considering the above?
     
  14. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Yes, I have done a few
    Some banks are very generous on their cash outs
    Other times the cash out has been with the same bank as getting the loan for the new purchase and the bank wants to control the funds for the settlement of the new property.
     
  15. frank22

    frank22 Well-Known Member

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    I am new to this too and wanting to buy my first IP . . I have 68% equity in PPOR ,approx $516000.00 and looking to purchase IP for $450,000 ,the lender pre approved $473000.00,to cover stamp duty
    1. Why is cross collateralising such a bad idea?
    2. In the current market uncertainty,what are the chances the lender not approving $450,000 because of falling equity in PPOR .
    3. Anything else I need to be aware of
    thanks
     
  16. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    1. Giving too much security for the debt
    2. Slim
    3. heaps
     
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  17. Lindsay_W

    Lindsay_W Well-Known Member

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    HI Frank, I recall another post where you said you had 2 IP's and a PPOR? and another where you said you have never purchased a before?
    Financially free at 32 – My 10 year property journey

    Sounds like you're crossing the PPOR with the IP and borrowing 100% of the price plus costs (stamps etc)
    Is there a reason your lender is recommending this structure?
    It's not ideal and can likely be avoided or done without crossing the securities.
     
    Last edited: 20th Apr, 2020