April 02, 2014
- How Much Can I Borrow?
- Do I Have Enough Equity?
- What Costs Will I Have?
- How Can I Research The Market?
- What Are The Loan Options?
HOW MUCH CAN I BORROW
This is probably the number one question you will initially want to know. How much can I borrow to buy an investment home and how much will I have to repay? Online repayment calculators can be a good starting point. You can find these tools on our website https://www.mortgagechoice.com.au/home-loans/calculators/how-much-can-i-borrow.aspx
Generally the lender will consider your income as well as the proposed rental income from the new property against your expenses such as your current home loan, and any credit cards, personal loans etc.
Nothing beats doing your own budget to make sure you are comfortable with the level of commitment against your individual living expenses on a weekly or fortnightly basis.
DO I HAVE ENOUGH EQUITY
What is equity? Equity is the difference between the value of your home and what you owe on your home loan. So for instance if your home is valued at $400,000 and you owe $300,000 you have $100,000 equity.
Investors use this equity like a deposit on the new investment property, either by way of taking out a separate loan to access the funds or by allowing the bank to cross secure; mortgaging both your home and the new property and linking them to the total investment debt.
Lenders won’t allow you to draw on all of this equity because they need to keep a margin of 20% or as little as 5%-10% with lenders mortgage insurance to protect their security position.
This is where an experienced Mortgage Broker can help you to calculate your equity and also to calculate mortgage insurance costs to help with your overall decision making.
WHAT COSTS WILL I HAVE
Costs with the purchase of an investment property vary slightly from when you purchase a home. The most notable is your stamp duty costs as there are no concessions available for investors
- Stamp Duty
- Transfer Duty
- Government Registration Fees
- Building and Pest Inspections
- Any lender application/ valuation fees / mortgage insurance
- Solicitor / Conveyance Fees / Searches
This calculator is a great tool in obtaining information on government fees in the one place: https://www.mortgagechoice.com.au/home-loans/calculators/stamp-duty-calculator.aspx
If buying into strata titled property i.e. a unit complex, be sure to discuss body corporate expenses with the agent and your solicitor so you are aware of any ongoing expenses with the property.
You may be in a position to be able to borrow the total purchase price and all of the expenses so you are not out of pocket if you have sufficient equity and your income meets the lenders requirements.
HOW CAN I RESEARCH THE MARKET
The decision on where to buy your home and what type of home that was can be quite different to what you will be looking for in an investment property. A purchase of a home is usually done with the heart, and an investment property done with the head.
RP Data offers comprehensive reporting on the market as well as many other online forums. From a more local point of view you can usually use the local council’s website to search certain information on individual properties.
Consider if your investment strategy is for high rental yield (rental return) or high capital growth (value of the property), perhaps your looking for moderate growth and return in seeking the right property for you.
Compare other homes available for rent on realestate.com.au for rent returns in the suburb you would like to buy in to make informed decisions on what rental yield you might expect.
WHAT ARE THE LOAN OPTIONS
Borrowing for an investment property needs some additional consideration to buying your home. Financial advice around tax advantages is best sought from your accountant. An Accountant can advise you on your individual circumstances on how to hold the ownership of the property, solely or jointly, whose name the property / loan should be bought under.
The loan products that are available for purchasing an investment home are mostly similar with those for buying your home. So fixed, variable, split loans, professional packages, introductory interest rates are all options. With an investment loan you may also consider interest only repayments rather than principal and interest repayments that we are used to with our owner occupied home loans. Interest only repayments are generally available for a term of up to 5 years with many lenders. Interest only repayments are on a monthly payment basis, otherwise principal and interest repayments can be made weekly or fortnightly.
The structure of the loan that your lender establishes if you are using the equity in your home can vary and it’s important to understand the risks associated in cross securing your properties. An experienced Mortgage Broker is imperative in the process to guide you through a smooth process and provide you with relevant options.
Know the feeling of owing your own investment property, contact us to arrange an obligation free appointment on 07 3282 9124 or email email@example.com