Property Investment, Investment Loan, Wealth Building, Owner Occupier Loan, Mortgage Lending |
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Borrowing TipsThe following pages offer some advice, which we have found helpful in talking clients through the process of financing investment property purchases.
Personal LoansIf you are going to apply for a personal loan, do it after you have settled on your latest property purchase: repayments on personal loans affect your borrowing capacity. So if you are planning on purchasing an investment property in the near future, put off that new car purchase for a while! Lenders will still be keen to give you the personal loan afterwards, as personal loans and leases are assessed differently to home loans. Credit CardsLike personal loans, credit cards affect your borrowing capacity. Most lenders count 60% of your credit card limit as a yearly repayment figure. We recommend that you apply for the lowest credit card limit you can live with, to maximise your borrowing capacity, and wealth building potential. Tax ReturnsFrom a borrowing point of view, it is in your best interest to lodge your Tax Returns straight away in July each year. If you are an active wealth builder and you are applying for loans on an ongoing basis, lenders will want to view your Tax Returns with each application. There can be time-consuming and costly delays in getting applications approved by lenders waiting for Tax Returns to be completed. If your Tax Return is done straight away, you have piece of mind that you have everything in order to be able to get finance approved for the coming year. Lenders Mortgage Insurance (LMI)Mortgage Insurance is applicable on all home loans where the deposit supplied by the client is less than 20%. It is charged at a percentage rate, on a sliding scale from a 19% deposit, and can be up to 5% with some lenders. On a typical investment loan with a 10% deposit, the rate is 1.63% of the loan amount under $300,000 and 2.1% over $300,000. The only way to avoid the LMI premium and the increased scrutiny is by putting in a 20% deposit. If you decide to go for a 20% deposit option, it is still possible to draw your loan up to 90% loan-to-value ratio (LVR) at a later date and pay the premium at that time. Review and RevalueIt is important to stop once in a while, in our busy lives, and re-assess and reflect on our financial position in general - and wealth building in particular. We suggest that you sit down on a regular basis and write down the value of your assets and your liabilities. On page 15, we reproduce our Preliminary Assessment Form. If you complete this and fax it to your nearest office: on (03) 9699-6233 in Melbourne; (02) 8904-1328 in Sydney; (07) 3831-4262 in Brisbane and (08) 9221-8002 in Perth, we will be able to give you an accurate assessment of your current borrowing capacity. The form is also useful to calculate your net wealth position and help you set investment goals for the future. Costs associated with investment property purchaseWhen planning and budgeting for your investment property purchases, you need to take a number of associated costs into account. These costs shock many investors! It is always good to know exactly what your costs will be, so there are no unpleasant surprises... In our calculations throughout this Case Study on Duplication, we have allowed for $18,000 worth of costs. You may have wondered about this. Here are the sums. Click here to see an example What lenders are looking for in assessing you for a loan
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