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Buying off the plan

Discussion in 'Real Estate' started by poponuts, 1st May, 2013.

  1. poponuts

    poponuts New Member

    Joined:
    22nd Mar, 2013
    Posts:
    3
    Location:
    wolli creek, nsw
    Hi all,

    My first time posting here so please be nice to me :)

    Anyway, I am planning to buy OTP from mirvac where the land will only be registered by end of this year. However, I need to pay 5% of the land value which is roughly around $15k.
    Currently, I have a a loan amount of $400k where the property value is around $470k.
    We are having a baby by end of this year and my wife might take some time off from work (hopefully getting the parental leave pay). My salary is around $130k + super.
    I plan to use the equity of my current property for the next purchase.

    My broker told me that I need to have a pre-approval around 2 months before the land gets register. However, he is cautioning me the risk of depositing 5% as there is still a chance of the loan getting rejected.

    What are my chances of getting approved based on my situation? I can ask some smaller banks to lend me right?

    Basically, I just want to make a calculated risk based on your advices.

    Thanks in advance.
     
  2. GregR

    GregR Reid Consultants

    Joined:
    13th Jul, 2009
    Posts:
    273
    Location:
    Berwick Vic
    I would need some further information before being able to assist.

    From what you have written, you are in a property now worth $470k and a mortgage of $400k.
    You are buying an OTP but what price and how much do you need to borrow?
    What is your wife's income and how long is she expected to be on maternity leave?
    When you say you plan to use equity in your current property for the next purchase, please clarify as your existing LVR is at 85%.

    Greg
     
  3. poponuts

    poponuts New Member

    Joined:
    22nd Mar, 2013
    Posts:
    3
    Location:
    wolli creek, nsw
    Hi Greg,

    Thanks for the response.

    Basically, I would like to use the equity of $70k as a deposit for my next loan. I currently have less than $10k savings and would like to keep it where it is. I plan to borrow from a relative on the 5% deposit needed.

    My wife's income is $50k pa and expecting her to have a maternity leave prolly for 3 months.

    The land value is $285k but I am looking at the land and house package which will cost $540k to 550k.
     
  4. GregR

    GregR Reid Consultants

    Joined:
    13th Jul, 2009
    Posts:
    273
    Location:
    Berwick Vic
    Crikey.
    Your issue is is not what your borrowing capacity is but what equity you have.
    The main way to use the $70k equity (which will take it to 100% of the property value) is to use this property as cross security for the H&L package. It is highly unlikely you will be able to extract this any other way, mortgage insurers are very conservative allowing cash out above 80% LVR and will not go above 90% generally and you pay a considerable LMI premium to do so.

    Assuming the H&L is $550k, plus the $470k existing property, total $1.02m, you are looking to borrow $550k plus your existing $400k mortgage = $950k or a loan to value ratio (LVR) of 93%. This ignores stamp duty which will largely take up the additinal 5% you are brrowing from a relative.

    There will be lenders who will consider this but it will be mortgage insured and you will be governed by the mortgage insurer's policies. Lenders mortgage insurance (LMI) may cost up to $40k to do this.

    Perhaps look at alternative methods, parent security guarantees perhaps. Also make sure when you do apply for the loan that your wife is working, so get the timing right.
    Good luck with it.
    Greg
     
  5. poponuts

    poponuts New Member

    Joined:
    22nd Mar, 2013
    Posts:
    3
    Location:
    wolli creek, nsw
    Hi Greg,

    That was very informative. Thanks!
    It seems like I am taking a very big risk.

    I plan to rent out the current property with around $500pw (I checked similar properties in the area). However, the LMI is quite big and prolly not worth it. I reckon I would struggle to do the repayments.
     
  6. jodie123

    jodie123 Active Member

    Joined:
    15th Aug, 2012
    Posts:
    34
    Location:
    Brisbane, Qld
    Sounds like a pretty big risk but good on you for doing your research beforehand. Lots of experts on these boards!