Can I borrow 95% for an investment property?

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wardove
Posts: 39
Joined: Wed Jul 03, 2013 8:31 pm

Can I borrow 95% for an investment property?

Post by wardove »

Hi everyone,

I am an IT professional and own a house in Sydney and an apartment in Adelaide. The value of both pieces of property is growing, and those are turning out to be beneficial investments for me. So I am thinking of investing in a new home.

However, I will not be able to put much amount for the deposit on my new purchase. So I would like to know how much banks will lend to me. Could someone tell me if I could borrow 95% LVR for my new investment?

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Otto Dargan
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Re: Can I borrow 95% for an investment property?

Post by Otto Dargan »

Hi wardove,

Lenders consider investment loans to have a higher risk than standard home loans. You may be able to borrow 95% LVR for your investment property. If you are able to get a 95% loan, you would still need about 9-10% of the property value for your purchase.

This is because apart from the 5% deposit, you require an additional 4-5% for other associated costs such as stamp duties and conveyancing costs. You will need more to pay Lenders Mortgage Insurance (LMI) although some select lenders may be willing to capitalise your LMI.

To be able to get your 95% investment loan approved, you will need to meet the basic criteria of the lenders. These include:
  • You should have 5% - 10% of the property value in genuine savings.
  • If you are borrowing more than 90% LVR then some lenders require you to have equity in other properties.
  • You have a clear credit history.
  • Your credit score is above average.
  • You have a stable employment.
Basically it all boils down to your financial situation. Could you tell some more details about your finances?

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

wardove
Posts: 39
Joined: Wed Jul 03, 2013 8:31 pm

Re: Can I borrow 95% for an investment property?

Post by wardove »

Thanks for the reply, Otto.

I live in Sydney with my wife. I earn $80,000 per year while my wife brings in another $60,000 from her job. We have saved around $40,000 in our offset account. I am planning to buy a new property worth about $800,000.

I had purchased the house in Sydney four years back for $540,000 and I owe $320,000 on it now. The Adelaide apartment cost me $290,000 and I owe $100,000 on it. So how will banks view my finances? Could you also tell me more about LMI capitalisation?

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Otto Dargan
Mortgage Specialist
Posts: 7729
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
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Re: Can I borrow 95% for an investment property?

Post by Otto Dargan »

Hi wardove,

It seems that you have enough equity on your properties and therefore you may be eligible to get a loan for your new investment. You may be able to borrow 100% of the new property value.

For this, you will have to use your equity in your house or your apartment as deposit for your next purchase. Lenders may be willing to lend you even up to 105% to cover your stamp duties and conveyancing costs, and your LMI can also be captitalised.

LMI capitalisation is the process by which the LMI premium is added to the loan amount you are applying for. This means that if you apply a loan for $600,000 and need to pay $9,500 LMI, the final loan amount will be $609,500. You will thus be able to use the full amount that you applied for in the first place.

To get a better idea of your borrowing power, you can use the Borrowing Power Calculator. It takes into account your income and expenditure and gives you an idea of how much you may be able to borrow. It uses the same method as used by three different lenders to calculate your serviceability and determine whether you may be eligible for a loan.

If you would like more help with your investment loan then you can call us on 1300 889 743 or fill out our free assessment form.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

wardove
Posts: 39
Joined: Wed Jul 03, 2013 8:31 pm

Re: Can I borrow 95% for an investment property?

Post by wardove »

Thank you for your comprehensive response. I will talk about this with my wife and get back to you soon.

Cheers,
wardove

benjie
Posts: 36
Joined: Wed Jul 03, 2013 8:33 pm

Re: Can I borrow 95% for an investment property?

Post by benjie »

Hi Otto and wardove,

I have a home loan and have been making timely repayments on that, not to mention some extra payments. But when I approached my bank for an investment loan, I was declined the loan. They said that an investment loan is too risky.

Why do they make a distinction between a home loan and an investment loan? Are there any ways through which I may be able to increase the chances of the loan being approved?

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Otto Dargan
Mortgage Specialist
Posts: 7729
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
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Re: Can I borrow 95% for an investment property?

Post by Otto Dargan »

Hi benjie,

Lenders consider investment loans to be associated with higher risks than standard home loans. This is because if you fall into any financial hardships in the future then you will most likely prioritise your home loan repayments over your investment loan repayments.

You may take the following steps in order to increase the likelihood of your loan being approved, as well as to increase your borrowing power:
  • Apply with a lender that has more favourable criteria for investment loans.
  • Reduce your credit card limits.
  • Apply jointly with your spouse to show a higher income.
  • Invest in positively geared properties.
  • Fix your interest rate.
Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

benjie
Posts: 36
Joined: Wed Jul 03, 2013 8:33 pm

Re: Can I borrow 95% for an investment property?

Post by benjie »

I didn’t know that different banks have different criteria for investment loans. I guess I will have to check with other banks. Thanks for the reply.

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