Investment Finance: Can I Get Finance?
In order to qualify for a mortgage for your first investment property you need to have an income and a deposit. Investment finance sounds simple, doesn’t it? Well, sometimes it is and sometimes it isn’t.
What you need to know when it comes to Investment Finance:
The beauty of an investment property is that you get a second form of income, Rent! However, you need a basic income to get you started. If you have a job, then a couple of payslips is often all you need to verify your income. If you are self employed, then you will need two years tax returns for yourself and your company if you have one, plus two years of financials for your company. You will destroy a rain forest in the process of providing those documents. Not impossible, just a bit more involved.
As an investor you will also get tax breaks to assist you in your repayments, this is almost like a third income stream. Let me illustrate this for you…
Suppose we have a young guy, living at home who earns $50,000 per year and has no debts. If he were to apply for a mortgage for a house that he planned to live in, the maximum he could apply for would be approx. $320,000. However, if he was to look at purchasing an investment property that earnt him $400 a week in rent he could borrow up to $500,000 in investment finance.
The point is that young people can get into the market earlier than they first thought if they want to buy an investment property.
Our friend who just realised he could borrow $500,000 is limited by another factor. He needs to have a deposit. You see, the bank is very interested in you investing something into this property. If you don’t put any of your hard earned cash into it, then often it feels like a bit of a fairy tale. It’s these loans that often fall over. So he will need a minimum 5% deposit. or in this case $25,000 plus costs.
This can be saved up over time, it can be given to you (by some very lovely parents perhaps) as long as it stays in your account for three months or your parents/family can go guarantor for you.
So what are these costs? The biggest cost is definitely stamp duty. On a $500,000 property the stamp duty could be as much as $18,500. The other costs include that of a conveyancer plus any other incidental fees such as pest and building inspections etc… It’s best to have about $2,000 available.
Sounds like a lot? Yes it is, however, there are a lot of grants going around for people who buy brand new properties. The government is very interested in stimulating the building industry and is prepared to make things easier for you to get started.
The third and final part of investment finance is in regards to your credit history. If you have ever had some problems with paying your phone bill or credit card then it would be worth enquiring about your credit history. If you made a payment two days late then you have nothing to fear, but if you got very late on something and received several notices then there is a change you received a default. This can make borrowing difficult, not always impossible, but certainly more difficult.
Article by James Parnwell
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