100% Home Loan Case Study
How to buy a $330,000 home with $1,800 in savings!
A young married couple recently came to me to discuss buying their first home.
Charles and Alison were recent graduates earning $50,000 gross pa each, and had just completed working one year fulltime in their new positions.
The one year continuous employment qualified them to apply for a 100% home loan, and in the price range they were looking at their income was going to be enough to service the debt.
Charles had a car loan with repayments of $878 per month and the couple shared a credit card with a limit of $4,500.
Their income was still enough to qualify them for the 100% home loan.
The next challenge was they only had $1,800 in savings.
In Victoria, while they qualified for $10,000 First Home Buyers Grant Government assistance, they still have to pay Stamp Duty on the purchase price and the $10,000 assistance would not be enough to cover all costs.
The purchase price they finally negotiated for their property was $330,000.
The cost of the Victorian Government Stamp Duty alone was $15,460.
The next largest cost was the Lenders Mortgage Insurance (LMI) - this is insurance designed to protect the bank when they lend more than 80% loan to value ratio (LVR) and in this case the premium was $9,380.
Legal costs for their conveyance (transfer of Title) would be $600;
Registration of Mortgage and Discharge of existing Mortgage was 2 x $92.50.
Bank fees including Valuation Fees, Application fees, and Legal costs for document preparation was $800.
So total expected costs were: $26,245, which after deducting the $10,000 Govt grant, the clients had to find $16, 245 plus any adjustments in council rates (estimated at $400), that would have to be paid at settlement = $16,645.
Savings of $1,800 were not going to go far here.
The solution was a Real Estate Deposit Loan from Active Money.
There are the only lenders who will assist with the deposit in these circumstances, with an unsecured loan that will take the total borrowings up to a limit of 105% LVR.
The Home Loan Lender lent $320,100 plus LMI of $9,380 = $329, 480, the Real Estate Deposit Loan Lender approved $17,000 to assist in meeting all costs.
Total borrowings were $346,480, 105% of the purchase price of $330,000.
The repayments worked out at $1,184.40 per fortnight (30 years) or $1131.03 (40 years) for the home loan and $144.25 per fortnight (for 8 years) for the Deposit Loan.
The personal loan proceeds were paid directly to the Solicitor for the Vendors so the Lender could ensure the proceeds were used for the purpose borrowed.
The clients were overjoyed with result, particularly when they were advised by their landlord he was going to increase their inner city apartment rent from $410 per week to $530 per week.
It was smiles all round now that owning their own home would free them from the clutches of the landlord.
Many young people will put off buying a new home because it is cheaper to rent, forgetting that their rent will continue to rise, while their loan repayments will not particularly if they fix their loan repayments.
An inner city unit typically rents at 4% of its value, $690,000 will rent at $530 per week. The usual increase in value for such properties is approximately 7%pa.
Remember practically all properties in Australia have doubled in value every 7 to 10 years for the past 100 years.
This would mean after 5 years the property would be worth about $965,000 and at 4% return, would be renting at $740 per week, $1480 per fortnight (already the home loan repayment of $1,184.40 per fortnight is lower).
After 10 years valued at $1,360,000 at 4% return the rent would be $2090 per fortnight, way past the home loan repayments, and remember the Personal loan has been finalised after 8 years.
The final piece of good news in this case study was that Charle’s father has now promised to assist with their home purchase by paying out the Personal Loan.
Buying a new home just got easier!
William MacLean,
Finance and Wealth Strategist,
MacLean Finance Pty Ltd.
“Own Your Property, Love Your Loan, Secure Your Future Wealth!”
100%+ Home Loan Case Study 2
How to buy your First Home with only $9,000 in savings!
A married couple in their early 30s shifted down to Melbourne from Sydney and came to me to discuss buying their first home.
They had been quite happy to rent until they moved to Melbourne and found Melbourne prices cheaper than those they had seen in Sydney, and wanted to buy now before they started a family.
Ben was earning $52,000 gross pa as a tradesman, while his wife Sascha was earning $57,000 as an executive in a small company and they had both been working just over one year fulltime in their new Melbourne positions.
The one year plus continuous employment qualified them to apply for a 100% home loan, and in their price range their income was going to satisfy the bank that they could service the loan repayments.
Ben had a car loan with repayments of $455 per month, and they jointly had a Personal Loan of $15,000 with repayments of $352 per month and shared a credit card with a limit of $7,500.
Their income was still enough to qualify them for the 100%+ home loan.
However they did have $9,000 in savings.
In Victoria, while they qualified for $10,000 First Home Buyers Grant Government assistance, they still have to pay Stamp Duty on the purchase price and the $10,000 assistance would not be enough to cover all costs.
With a purchase price of $285,000 the Victorian Government Stamp Duty was $12,760.Then there was the Lenders Mortgage Insurance (LMI) - this is insurance designed to protect the bank when they lend more than 80% loan to value ratio (LVR) and in this case the premium was $9,405.
Legal costs for their conveyance (transfer of Title) would be $450;
Registration of Mortgage and Discharge of existing Mortgage was 2 x $75.
Bank fees including Valuation Fees, Application fees, and Legal costs for document preparation was $820.
So total expected costs were: $23,585, which after deducting the $10,000 Govt grant, the clients had to find $13,585 plus any adjustments in council rates (estimated at $270), that would have to be paid at settlement = $13,855.
Their savings of $9,000 were $4,855 short of what they needed.
For this couple the solution was a secured personal loan which one lender was prepared to add $10,000 on top of the 100% home loan.
The Home Loan Lender lent $285,000 including the LMI of $9,405, they added the personal loan of $10,000 to assist in meeting their shortfall.
Total borrowings were $295,000, 103.5% of the purchase price of $285,000.
One of the special features of this loan structure, was that the basic loan was $265,000, with a full offset facility, that operated as a bank account into which salaries could be paid, and direct debits could be made for loan repayments.
A second loan for $20,000 was set up as a line of credit, which functioned just like an overdraft account with a limit of $20,000, and again, salaries could be paid into it, direct debits made from it, etc. Clients could choose which facility would suit them most to use, either the offset account or the line of credit.
Fee free was a bonus attraction.
The personal loan repayments were paid directly from the Line of Credit account
The clients were a little confused initially, but once they worked out getting their salaries credited to the right account and getting their loan payments set up to happen on there due dates it all started to operate smoothly.
They were very happy to be buying their first home and not having to continually shift every year or two, but being able to relax at home without worrying about the landlord’s requirements.
Buying a new home can be just as easy for you, contact our office to see if you qualify, obligation free!
William MacLean,
Finance and Wealth Strategist,
MacLean Finance Pty Ltd.
“Own Your Property, Love Your Loan, Secure Your Wealth!”
