Borrowing Power For Investment Property

Hello

Looking to determine our maximum borrowing capacity so we can purchase a new PPOR & convert our existing PPOR into an IP.

So our situation in a nutshell:

PAYG Income
$74200 + $38000

Current IP: (Bought OTP Dec 2010 - Settled Sept 2012)
Value: $350000+
Owing: $320300 @ 5.7% I/O
Rented: $380pw

Current PPOR (will convert to IP)
Value: $520000
Owing: $28000 ($173500 @ 7.45% fixed + $115000 @ 5.9% var) P&I
Rent estimate: $500 pw

Total CC limit $30250

What is the maximum amount we can borrow given the figures above?

Taking into account that we settled on our first IP very recently (Sept 2012), how long should we wait before applying for a new loan without raising a red flag?

Would it be simpler (& legit) to apply for a simple investment loan, & to just move into the newly acquired property at settlement converting it to our PPOR?

Thanks!

[Otto Dargan]

Thanks for posting.

I'm going to make a few assumptions. Firstly that you live in NSW and in Sydney, there is only a minor change in your borrowing power if you aren't.

Secondly that all of your current loans are P&I over 30 years. I've assumed that your current fixed rate loan is fixed for 3 years or more.

Thirdly that your current properties are jointly owned between you and your partner.

Finally that you have no children! If you do have kids then this will reduce your borrowing capacity.

What is reducing your borrowing power?

Your credit card limit is a lot higher than most peoples. Some lenders can ignore your credit card limit if you pay them off in full each month. Otherwise you may want to reduce your limits or cancel your cards to increase your borrowing power.

Your existing properties reduce your capacity however the rent income is quite high and so this does not make as big a difference as you might think.

What can you do to increase your borrowing power?

If you fix the interest rate on your new loan then you can borrow a lot more. Also if you switch your current loans to interest only then this will increase your capacity with some lenders, and reduce it with others.

How much can you borrow?

You can borrow a maximum of $606,000 to buy a new home.

If you cancel your credit cards you can borrow $707,000.

If you cancel your credit cards and switch your current loans to interest only then you can borrow $767,000.

Find out more

You can use our mortgage borrowing power calculator to find out what you can afford given different situations.

Disclaimer

We haven't seen your whole situation and there are a lot of assumptions. So this is only a rough guide. If we see your full details we can give a more accurate assessment.

Naturally we don't recommend that you borrow to your limit. The above figures are the maximum, not the recommended amount.

Also we wouldn't recommend that you just pretend that your property is an investment to enable you to borrow more.
You can buy the property as an investment and then move into it in a few years when your income has increased, but not right away! Remember the banks calculators are also for your protection.

I am looking for property in the Sydney region at are in the 350-400k price range. Can you suggest anyone in Sydney ?

[Otto Dargan]

Hi Clint,

If you are looking for property in Sydney I would suggest speaking with Hank (Hoa) Hong.

Hank is one of our senior mortgage brokers and is a property investor himself.

He also has multiple real estate connections throughout the Sydney and NSW region.

If you would like to discuss your situation in more depth please feel free to call on 1300 889 743.