Suggestions on loan type and lender

Hi everyone, total newbie here.
Got some questions on my first property purchase, any help/suggestions is greatly appreciated.

I'm a month into a new job.
Things are going well so I thought it's good time to start looking to purchase my first property.

Current plan is to purchase a property worth ~$1mil with a $200k deposit.
So looking at LVR of around 85% (i.e. loan ~$850k).

I plan to rent it out for 1-2 years to get some negative gearing going and build up buffer for a rainy day. During that time I'll be leeching off parents so minimal expense. But it'll be PPOR after the initial rental period.

Salary income is 140k + super.

So my questions are:

1. I have 5 month probation left, ideally I want to approach lenders that are comfortable with that.
   I might be able to get it cut down but I prefer if I don't have to ask.
2. Is it better to get investor loan or owner occupied loan in my situation?
3. As I'll be borrowing quite a lot, is it better to try to avoid LMI or get a better rate instead?

The type of property I'm targeting will be old units (circa 1970) so no building depreciation expected.
Thanks in advance.

 

1. no question listed.
2. owner occ
3. avoid if possible.

 

You can get a loan whilst in probation. Where were you prior to this role?

Appears to be a fairly large non deductible debt (if taken as an owner occupier). You can always change the security purpose to owner occupier later on. Though since you are using post tax dollars and have the 6 year cgt free rule at play seek accountant's advice..

Ideal to not pay LMI on that sized loan. However if IP, you would get tax benefits

 

How old are you and do you have a family?

 

You could take it as OO and still claim the interest for the period it's rented, as long as you can service the debt with no rental income.

I would save up a bit more or use a parental guarantee so you can avoid LMI - that will hurt at your purchase price.

Also seriously consider if taking out a huge loan is wise while on probation? Sometimes unexpected things (like a manipulative workmate) can ruin things for you despite your best effort. Have a plan for what you'll do if you find yourself without a job (wise to consider this regardless). This adds to the case for getting a guarantor and keeping some of your cash for a buffer.

 

If short term outlook is to make PPOR in 1-2 years then it has an emotional purpose to the purchase and becomes a very simple equation.

Are you confident that in 2 years the property will have experienced enough capital growth to cover your repayment losses (after NG) and the LMI?

For example if if were most parts of Sydney and this was me I would definitely rethink my plans. I'd prefer to keep leeching, saving and then buy in 2 years for the same (but in front because I wasn't paying a huge mortgage getting only slightly offset by rent and NG) or dare I say LESS.

 

Thanks, I assume you mean probation is not something lenders actively ask about?

 

Prior to this I worked overseas for an international bank for 5 years in similar role to my current one.

Say if I go owner occupied, I take it the interest can still be negative geared but principal repayment cannot. Is that what you mean?

Regarding LMI, is it hard to avoid? Obviously if staying at or under 85% LVR can avoid it I will try to. If too much hassle then I'll be more liberal and go up to 90%.

Thanks.

 

Married with no kids. 36 years old.

 

Thanks Jess. All good points.

Parents retired but have owned property.

I do have some equity in a property that dad is living in. Forgot to mention that earlier. So 33% equity in a 800k place. Would that help? I can also get mum to be guarantor if required.

Regarding borrowing such a large amount during probation it's definite a risk and ideally I want to have to have buffer.

 

If there's a way to do it, I'd say do it as long as appropriate risk management is in place for both you AND the guarantor.

 

Also can you elaborate why you recommend owner occ?

 

nice one mate. that's not a bad angle. your implication is that property will be stagnating for the next couple of years. will need to do the math but given I'm looking at old units, will definitely still be negative geared after tax.

Thanks for your input.

 

noted, thanks jess.

 

I don't think the principal repayment is ever tax deductible regardless of loan type.

But I am very new to all this, so perhaps this is something I have misunderstood. In which case I might need to claim alot more deductions on my tax next year.

 

Do you mean you own a 800k place with a mortgage of 550k, or you jointly own the place with someone?

1m unit ppor is a lot. Do you expect your circumstances to change, eg kids? You buy this and you probably cant upgrade without selling. If its in the next few years thats costly.

 

Principle payments are not deductible so you're all good

 

No i didn't say that or imply that. Probation is something lenders ask about. Some are more ok with it than others but it will depend on the situation. Going above 80% means the insurer has to approve your loan and they have more of a concern with probation than the banks.

 

Cheaper rate usually.

 

Likely owner occ if possible, potentially guarantor loan. In the end putting a couple of variables up on an internet forum for advice for what will likely be the largest or one of the largest purchases of your life probably is doing yourself a bit of a disservice.

Have a chat with a broker who understanding property investment and that way you can get specific tailored advice on what's best for you - as there's a lot of other variables to consider.