Home loan Question!

[mmhmm]

Hey Guys

Hoping somebody can chime in with some advice. Looking at buying our first property. Our current broker said, the banks won't lend any extra for renovations which has shocked us since sometimes the homes we inspected needed floors to be re-done, painted new walls , doors repaired etc.

Does anybody have any experience with this or are all banks just going to say that they will only finance the home and not any renovations?

I thought we could buy a home thats cheaper and renovate it.

Any advice would be great or for people that have gone down this track

Cheers

[thefargo]

I think the bank will loan you a sum based on what the value of the property is. Usually lower than real value. This way if you default on payment they sell the asset and recover their money.
If you want extra they would not see that as being financially viable as the property is not actually worth that investment (yet).

Maybe (?) you would need another loan, not a home loan, in order to finance the improvements. obviously at higher rates, etc.

[MITCHAY]

You would probably have to get a different type loan. My experience as a FHB is that they approve you for up to a certain amount but what you get is based on the valuation on the house.

Then at settlement they pay the difference to the seller between the sale and deposit. You could potentially put a lower deposit down and use cash for the renos but bigger deposit will often get you a better rate and avoid mortgage insurance which doesn't protect you but the lender.

It would be rather difficult to assess that risk and reward of potential renos I would think even if you're approved for the upper limit.

[mmhmm]

Yes i understand that,

For estimates sake, lets say your approved for say $500,000

Couldn't you buy a home say in the country for about 350k or less which you plan to renovate. Wouldn't they still think with the 2 incomes they can of course part away the risk since they approved for a higher amount yet not using that much?

I just feel its like the banks give you always the short end of the stick !

[MITCHAY]

Originally Posted by mmhmm

Yes i understand that,

For estimates sake, lets say your approved for say $500,000

Couldn't you buy a home say in the country for about 350k or less which you plan to renovate. Wouldn't they still think with the 2 incomes they can of course part away the risk since they approved for a higher amount yet not using that much?

I just feel its like the banks give you always the short end of the stick !

I'm not 100% sure but I can see that it being standard practice not to loan more than the valuation and can only imagine you will pay a lot more interest if it were the case.

The mortgage is secured against the property so it would not make sense to have a home loan worth more than the valuation.

The only real exception I can imagine it being worth it for them is if you were able to pick up a house substantially below valuation but realistically how often does that happen

[kcodezd]

You could be approved of even double what you are looking to buy, however the value of the property always comes into play. The banks are looking at what they can sell for IF you default on your loan.

[MITCHAY]

Not to mention they are legally obligated to assess your financial situation.

I can't recommend a mortgage broker enough. The rates my bank were offering were crap and they only noticed once I was withdrawing all my cash.

The lenders pay them commission but they have to disclose this to you so you can make a choice about it. They will pay an upfront commission and a trailing commission over the life of the loan. What this means is if you are not happy, you tell them to sort it out. Email them and say I don't think this rate is fair and get them to do the leg work. Like insurance, lenders depend on the 'lazy tax' but every time I have asked, I have always got a discount.

I pay about $300 a year but I also get 100% offset, redraw and up to 10 loan splits with the option to switch between principal and principal and interest.

I have saved many thousands of dollars even on variable rate where fixed looks attractive.

The fees might seem to be not worth it on face value but you have to consider the whole package and conditions which a broker will help you out with.

[Giant Cranium]

Originally Posted by mmhmm

Yes i understand that,

For estimates sake, lets say your approved for say $500,000

Couldn't you buy a home say in the country for about 350k or less which you plan to renovate. Wouldn't they still think with the 2 incomes they can of course part away the risk since they approved for a higher amount yet not using that much?

I just feel its like the banks give you always the short end of the stick !

The bank doesn’t want to give you 500k for you to buy a 350k house. They do not trust that you will use that 150 on the house and they don’t care if you think the house will be worth 500k once done.

[MITCHAY]

Originally Posted by Giant Cranium

The bank doesn’t want to give you 500k for you to buy a 350k house. They do not trust that you will use that 150 on the house and they don’t care if you think the house will be worth 500k once done.

Yep can't be anymore blunt than that.

[hayseed]

OP, here's some reading for you...
https://www.homeloanexperts.com.au/h...lue-ratio-lvr/

[wodahs]

Originally Posted by mmhmm

Yes i understand that,

For estimates sake, lets say your approved for say $500,000

Couldn't you buy a home say in the country for about 350k or less which you plan to renovate. Wouldn't they still think with the 2 incomes they can of course part away the risk since they approved for a higher amount yet not using that much?

I just feel its like the banks give you always the short end of the stick !

they will assess what you can repay
they will assess the assets worth your buying
they will offer the less of the two

then you either
get another loan to do renos
or live in it the way it is till you have capital in the house to refinance for renos
or purchase a new house with no renos at price completed and banks offer

[Mont5.0]

Originally Posted by mmhmm

Yes i understand that,

For estimates sake, lets say your approved for say $500,000

Couldn't you buy a home say in the country for about 350k or less which you plan to renovate. Wouldn't they still think with the 2 incomes they can of course part away the risk since they approved for a higher amount yet not using that much?

I just feel its like the banks give you always the short end of the stick !

answered your own question.

[Yellow_Festiva]

Originally Posted by mmhmm

Yes i understand that,

For estimates sake, lets say your approved for say $500,000

Couldn't you buy a home say in the country for about 350k or less which you plan to renovate. Wouldn't they still think with the 2 incomes they can of course part away the risk since they approved for a higher amount yet not using that much?

I just feel its like the banks give you always the short end of the stick !

If you are approved for 500k then lets assume you have 100k deposit, being 20%.

If you buy the place on 10% deposit you will pay mortgage insurance but you will then still have 42-45k up your sleeve for renovations.

Buying the place for 350k means you will have even more to play with.



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[prktkljokr]

Banks are only interested in the money and protecting that money, if the house has a market value of $350,000 you had a deposit of $50,000 and you croaked tomorrow, your wife cant afford the mortgage and it goes into default, even if the house jumped to $400,000 market value overnight, they will sell the house at $300,000 to recoup what is owed to them as thats all they care about, a quick sale and money back in the bank.

So if you borrowed $400,000 with your $50,000 deposit on a house and paid market value of $350,000 done all the restorations overnight and croaked tomorrow the bank could not recoup their money in a hurry like they want as the house is still only worth what you paid for it.

You might be surprised to know that your mortgage gets sold once the bank does the loan sometimes before you make the first payment, the bank still services the loan and make a small percentage, but someone else owns it and makes a percentage of the money the bank charges in interest, its a very common practice and if you loan does not look good they cant sell it.
If you think about it, it is smart for the banks to do this as they can have hundreds of thousands if not millions of loans that they can make a small percentage off but not have the debt of the money being out for 30 years .

[sr71]

Offer the seller extra, for a delayed settlement. But with access and approval to do a small renovation. Let’s say Bathroom, Kitchen and repaint.
You will have to release the deposit to the seller, and forfeit all money spent if you don’t get the finance. But if you pull it off, you’ll have a property valued higher.
There are a few sellers out there, who have been in your position, and want to give first time buyers a chance. The extra money offered is a win for them, if they are not pressured to sell.
Agents won’t like this sort of deal. So a couple of grand their way, could satisfy them, to delay their commission. And even talk the seller into accepting. Slippery buggers!
If you’re not a tradie, you will need some quotes to back up your plans. No one wants a first time renovator tearing their house apart. No matter how many shows they’ve watched featuring Scotty Cam.
Also rural purchases are zoned B or C by the banks. Not as easy to sell as Zone A city locations. So lending LVR’s vary with different locations.
Good luck with your purchase.

[Peter B - CV8]

Originally Posted by sr71

Offer the seller extra, for a delayed settlement. But with access and approval to do a small renovation. Let’s say Bathroom, Kitchen and repaint.
You will have to release the deposit to the seller, and forfeit all money spent if you don’t get the finance. But if you pull it off, you’ll have a property valued higher.
There are a few sellers out there, who have been in your position, and want to give first time buyers a chance. The extra money offered is a win for them, if they are not pressured to sell.
Agents won’t like this sort of deal. So a couple of grand their way, could satisfy them, to delay their commission. And even talk the seller into accepting. Slippery buggers!
If you’re not a tradie, you will need some quotes to back up your plans. No one wants a first time renovator tearing their house apart. No matter how many shows they’ve watched featuring Scotty Cam.
Also rural purchases are zoned B or C by the banks. Not as easy to sell as Zone A city locations. So lending LVR’s vary with different locations.
Good luck with your purchase.

Umm - don't do any of this. The Bank will not give you one cent of loan money until settlement/purchase of the property ie until you are the legal owner of the property. The best you can do in the short term is try to borrow as much as possible ie keep some of your savings for some of the planned improvements. Then have property revalued (hopefully higher) to enable the Bank to give you some more loan funds for whatever else you want to do.

[.:4:.]

I am a dead set broken record. Internet advice on mortgages, that means nothing. Speak to a broker. You cant twist their arms. They can only do what they can do. My old man before he retired, sold out, then passed away was a director for a large mortgage brokerage. They span all states, exept tassie. And in wa, they did a hostile takeover of the largest brokerage in that state, but didnt rebrand it. The company has been sold since. But, speak to an expert, they know their business. If they didnt they wouldnt have a job. And if you arent convinced by the first broker, go elsewhere. You can get advice from tom, dick and harry, but at the end of the day, a loan comes from the bank, and if they say no, the answer is no. So speak to the persons who have the systems, if you do not like it, go elsewhere.

[Citroënbender]

Originally Posted by Peter B - CV8

Umm - don't do any of this. The Bank will not give you one cent of loan money until settlement/purchase of the property ie until you are the legal owner of the property. The best you can do in the short term is try to borrow as much as possible ie keep some of your savings for some of the planned improvements. Then have property revalued (hopefully higher) to enable the Bank to give you some more loan funds for whatever else you want to do.

I was involved in a job along these lines, trouble came from another angle. Buyer and seller were fine with each other. Seller’s agent went to buyer and blackmailed them into being the agent for the buyer’s prior property (which they knew was being prepared for sale). The threat was basically to tip off the council about unauthorised works - it was probably a bit over the wide grey line of makeover vs new construction but not radically so.

[Peter B - CV8]

Originally Posted by Peter B - CV8

Umm - don't do any of this. The Bank will not give you one cent of loan money until settlement/purchase of the property ie until you are the legal owner of the property. The best you can do in the short term is try to borrow as much as possible ie keep some of your savings for some of the planned improvements. Then have property revalued (hopefully higher) to enable the Bank to give you some more loan funds for whatever else you want to do.

Should have mentioned. I've been a mortgage broker for over 20 years & prior to that a home loan manger for 15 years.