The answer to this is the cornerstone of a strategy used by most property investors to build their property portfolio. The simple answer is you can borrow 100% but you need to already own one property.
Prior to the Global Financial Crisis some lenders were lending up to 106% of the value of a property using just a single property as security but those days have passed. In fact these loans weren’t that popular in any case.
I’ll outline a simple example below of how borrowing 100% to buy a property works.
Let’s say you own a property already which is valued at $380,000 and you have a mortgage of $272,000. If you refinance your home loan and increase it to 80% of the property’s value you have a new loan of $304,000. That gives you an extra $32,000 to use on your new property purchase. This is referred to as equity release where you turn the equity you have in the property into cash funds. Just make sure you also account for loan exit and establishment fees which I have not included above for simplicity.
Most commonly people use their own home for equity release when they start this type of strategy but you could use an investment property if you already own one.
The next step is to get a loan on the property you are purchasing. If we now look at getting a 90% loan on the new property then the costs to make this purchase would be as set out in the table below.
Purchase Price $300,000
Stamp Duty (Victoria) $12,326
Mortgage Insurance $5,824
Establishment fees $900
Conveyancing fees $950
TOTAL COST $320,000
90% Loan $288,000
Equity Release $32,000
Your contribution $0
In this way you make no direct contribution to the purchase. All funds come from a combination of the two loans.
A final point is that you should set this up as two separate loans rather than one loan secured by two properties. This gives you more control for development of your property portfolio.
For assistance with this strategy call Onyx on 1300 1400 15
Onyx home page: www.onyx.net.au