Most Australians are comfortable with obtaining Finance to buy an investment property. We believe it’s important to use a specialist finance broker who understands investment property loans and what your future growth plans are. A specialist investment lender should work hand in hand with your advisors to ensure –
• The best chance of getting your investment property loan approved,
• The most appropriate lending product and rate for your circumstances,
• Compliance with strict lending guidelines set down by the government.
Lenders will look at many criteria when assessing you for an investment property loan . The most critical things for property investors are :
Your ability to repay that loan (known as your Debt Servicing Ratio or DSR).
In simple terms, the lender looks at the income your receive (from wages, other investment properties, family tax benefits etc).
The lender will then apply preset ratios for taxes and living expenses and will calculate how much they believe you can afford to repay each month toward your loans. Providing there is an excess of funds after tax, after living expenses and after paying any other loans (like your home loan) then you should have a good chance of passing this test.
The amount you wish to borrow and where the deposit and costs will come from (known as the Loan to Value Ratio or LVR).
In simple terms, if a property is worth $500,000 and has a debt of $500,000, the LVR would be 100%, as the loan is 100% of the value.
Typically, lenders limit loans to 80% of a property value with paying mortgage insurance (see below). So if you wanted to buy that same $500,000 investment property, typically you would need to contribute $100,000 (which is 20%) of the property value to have a LVR of 80%.
Mortgage Insurance is a fee paid to the lender if you need to borrow more than 80% of a property’s value, (known as Lenders Mortgage Insurance or LMI).
As you run out of equity, LMI is crucial to growing your portfolio. You will see from the table opposite that paying LMI would allow you to buy a $400,000 with just a 5% deposit (95% LVR) as you only need $48,474 as opposed to $94,490 (including purchase costs).
Some investors actively use LMI to conserve their own equity and cash and use it as a tool to buy more investment property when they are running loan on cash or equity.
In this FREE Property Investment Strategy Session, Prowealth CEO Daniel Goodwin will show you how to create a plan to secure your financial future.
LEARN HOW TO…
CREATE Instant Cash Flow of $50-100 per week from your existing Home Loan.
IMPLEMENT Tax strategies saving around 20% of the tax you pay right now and thousands over your working life. Get this wrong and it could easily cost you $100,000 in profit.
DISCOVER The strategy to pay out your home loan in 10 to 15 years and save hundreds of thousands of dollars in unnecessary interest costs.
AVOID The uncertainty of your Super and the share market by using your SMSF for a cash positive bricks and mortar investment property.
ACQUIRE A top performing investment property for as little as $7 a day, maybe even less.
UTILISE The investments you make now to enable you pay out debt, help your children get into their first home or simply enjoy the freedom of being financially secure.
Prowealth CEO and Leading Investment Property Advisor Daniel Goodwin has appeared and provided commentary in the following media publications and is the best selling Author of “10 Secrets of Professional Property Investors”
11Source – NSW Property $400,000 – https://www.yourmortgage.com.au/calculators/mortgage_insurance/result/