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Investment Property

buying property with family

Buying Property With Family

By | Home Loan Tips, Investment Property | No Comments

Everyone has most likely thought about it at least once. “The BEST way to get into the property market is buying property with family” But is it really? Before you jump in blind; make sure you look at all your options first.

I have seen my fair share of clients in my 20 plus years in the finance industry that have decided that buying property with family (other than their spouse/ partner) is the best option. I have also seen clients enter into a property purchase with a friend which creates it’s own set of issues. Whilst pooling your savings together to form a larger deposit is a great way to enter the property market as soon as possible; it does create some issues down the track if you want to borrow money own your own. The situation becomes a little more difficult if the property that you have purchased is an owner occupied property.

When you applied for your loan with your family member; your lender would have taken into consideration both incomes, assets, liabilities and expenses. Your lender would have approved your loan providing that you had enough income to cover your current and proposed debts (and living expenses) If the loan was to be used for investment purposes; the lender would have also included the rent you will eventually receive to boost your ability to service the loan.

Move forward a few years… You are now looking at buying your second property; this time on your own (and with your partner/ spouse if you have one) This is where things get a little tricky. You see your chosen lender (and this could be the same lender that you purchased your first property with or a new one) are going to look at your individual income(s), assets, liabilities and living expenses. The existing home loan that you have with your family member (or friend) now becomes your biggest liability as most lenders will assume that you are responsible for 100% of the home loan debt, but only take 50% of the rental income (if the property is being tenanted out) Worse still; the lender will only apply 80% of the half share of the rent to demonstrate serviceability. Very few lenders will apply what is known as a “Common Debt Reducer” to this loan. A Common Debt Reducer; in simple terms means to allocate half of the loan debt and half of the rental income; this is assuming that you have a 50% share in the loan and rental income. You will also need to consider that any lender that adopts the Common Debt Reducer method will also need proof that ALL parties can afford their share of the debt. This will mean obtaining evidence of the other parties income, liabilities and living expenses. In some cases this may prove difficult if the other party refuses to provide this information.

Before entering into such an arrangement; it is highly recommended that you seek the services of a professional Mortgage Broker to discuss all of your options before looking at buying a house with family. It is further recommended that you seek the services of a suitably qualified solicitor and draft an agreement that covers exit strategies should either party want to sell their share of the property or apply for a loan on their own.

For more information; please feel free to contact South West Lending Solutions on 02 8007 5626 or 0414 727 308

Buyers Agent

Buyers Agents.. What Are They?

By | Home Loan Tips, Investment Property | No Comments

What Is A Buyers Agent?

A Buyers Agent; also known as a Buyers Advocate work with people who wish to purchase a property. Unlike a Real Estate Agent who works for the person selling the property; trying to get the highest possible price for the vendor; a Buyers Agent works hard to obtain a property for the purchaser at the lowest possible price. Whilst they generally assist those that are looking at purchasing an investment property; Buyer’s Agent’s will also work with owner occupiers as well.

What Does A Buyers Agent Do?

A Buyers Agent in basic terms acts upon the sellers instructions and sources suitable properties based on these instructions. In-depth analysis is conducted on the suburb as well as the property itself. The following are just some of the criteria usually covered in the report:-

  • Proximity to public transport
  • Proximity to shops, entertainment hubs
  • Employment opportunities
  • Rental vacancy rates (for those looking to invest)
  • Capital growth of the property as well as the suburb
  • Potential rental return

The Buyers Agent will then negotiate with the Real Estate Agent on your behalf and try and get the lowest possible price for the property. If the sourced property is going to auction; the agent will also attend the auction and bid on your behalf.

Does It Cost?

Yes Buyers Agents do charge a fee for their service as they usually do not receive any commissions or payments from the real estate agent or developer from which they source the property. Fees and charges vary from agent to agent so it is best to shop around to ensure that you get the best bang for your buck however remember; you get what you pay for!

Here are a few Buyers Agents that we work with:-

Buyside

Cohen Handler

In closing; South West Lending Solutions highly recommend that you obtain a pre-approved loan before engaging the services of a Buyers Agent to ensure that you can afford to borrow the required funds to purchase your property

Everything Equity For Property Amateurs

By | Home Loan Tips, Investment Property, Renovating | No Comments

Equity often gets touted as the key to any given borrower’s future. Here, we provide a brief outline of what equity is and what you can do with it.

If you’ve spoken with a mortgage lender or any self-professed property expert will tell you the equity in your home is the key to your future plans. But wait – what is equity?

While it might sound like another case of impenetrable real estate jargon, equity is actually a fairly simple concept.

Allow us to explain.

What is equity?

Defined at its most basic, equity is simply the difference between the value of a home and how much you have left owing on that property’s mortgage.

To illustrate, let’s say you buy a property of $500,000 and you have a home loan worth $400,000. In this scenario, you have $100,000 worth of equity.

Is paying down my loan the only way to grow equity?

Certainly not! Paying down that fixed home loan is definitely one way you can take the reins in increasing the amount of equity in your home. However, let’s not forget that property is an asset that tends to rise in value naturally. As its value grows over the years, the gulf between how much it’s worth and the loan will get wider and wider, and leave you with substantially more equity to work with.

Why do I want to grow my equity?

Those people advising you about the benefit of equity weren’t wrong. Equity is essentially wealth sitting dormant in your property. It can, however, be ‘unlocked’ for a number of purposes. It can be used as security for loans for anything from cars to even holidays. You can even leverage it to buy another property, rather than saving up a whole new deposit.

What the real experts will do is then rent this investment property out to tenants, and receive a second stream of income. This revenue can then be put back into the original home loan, helping to pay it off quicker – pretty nifty, right?

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LMI: Explaining The Three Magic Letters

By | Home Loan Tips, Investment Property, Refinancing | No Comments

Many borrowers are pre-occupied with avoiding the cost of LMI. What is it and why, you ask? Read on and we’ll go through the basics.

What is LMI?

LMI stands for lenders mortgage insurance. That’s right – it’s not just home buyers who have be insured. LMI protects a mortgage lender in the unfortunate, but feasible, case where a borrower can’t meet their repayments and defaults on their home loan.

While it’s true a lender will hold the purchased property as security in case this should ever happen, it may not always be enough to cover the loss – if the value declines, for instance.

How does that affect me?

We’re getting to that! While LMI may be for the lender’s benefit, the one-off cost of purchasing it is passed on to the borrower as part of the home loan. LMI can end up costing thousands of dollars, so it’s not spare change we’re quibbling over here.

When does LMI get charged?

Typically, LMI applies only when borrowers take out home loans that are worth more than 80 per cent of the value of their properties, though different lenders and products might have different ratios. This is because the more of the value of your property that you borrow to pay, the riskier you are as a borrower.

What this means is that home buyers will want to save a deposit worth at least 20 per cent of the property price, in order to save themselves paying a few thousand more.

This sounds like a good deal for the lender.

Hey now, don’t be like that. The existence of LMI actually benefits borrowers as well. It means lenders are more likely to give home loans to a broader range of buyers, for one. And if you can’t save up the full 20 per cent deposit fast enough, but really want to nab that dream property, LMI means you can still get the loan you need.

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