Credit reference

Your lender is going to do a credit reference check on you. They’ll be looking at any credit applications made by you and will be checking if you’ve defaulted on payments or have an infringement referenced either in your name or your company’s name if you are self employed. Make sure that you have a ‘clean slate’ by checking your credit report. If something appears that you are unaware of, advise the agency immediately. You can order your personal credit file online. Enter your personal information, pay by credit card and your credit file will be forwarded to you as a PDF file.

How much can I borrow?

Know your limits. The amount you can borrow for your investment property will depend on many factors: your deposit or other equity you hold, what you are buying, the expected rental income, whether you will be negatively or positively gearing the property, property management costs and if you have allowed for a period of vacancy. This is where we can help you to work out how much you can borrow and what type of loan will suit your budget and lifestyle.

It is common to include some of your capitalised assets in your loan with some lending institutions allowing up to a 97% LVR. The way you structure your investment loan will depend on your personal circumstances and should be discussed with your accountant or financial advisor.

What deposit will I need?

Most lenders require a minimum 5% deposit, however if you are borrowing 80% or more of the purchase price you will be required to pay lender’s mortgage insurance (LMI – an additional fee).

Deposit bonds

A deposit bond is a guarantee to the vendor, by an insurance company, that they will receive their 10% deposit, even if the purchaser defaults on the contract of sale. You, the purchaser, are able to provide this guarantee to the vendor by paying a small premium to the insurance company. All purchase funds are paid at settlement. In the ordinary course of events, settlement takes place, the purchase price is paid in full and the deposit bond simply lapses.

Should I buy with someone else?

The most common way to buy a property with two or more people who aren’t a married or defacto couple is through a tenants in common arrangement. This allows the property ownership to be split in different proportions (not necessarily into equal shares). Three people can buy a third each, or it can be divided in other proportions. This also means your share of the property can be left to the person of your choice when you die.

In contrast, a property owned under a joint tenant arrangement (usually by couples) is held in equal shares. If one owner dies, their portion automatically passes to the other owner. Shared property ownership only works if strict ground rules and a tight contract are in place. Everything needs to be in writing. Your legal representative should be consulted. The two most important points you need to cover are what happens if one owner wants to sell their share and what happens if one owner cannot meet their repayments.

We can determine your borrowing capacity, how much deposit you may require and can also arrange the deposit bond if required.

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