Favourable
Purchase:
Buying a property under market value
Everything you need to know about favourable purchase Australia
Discover the secrets of making a favourable purchase in the Australian property market!
Buying a property under market value can be an excellent opportunity to secure a great deal and maximise your investment. Our expert mortgage brokers are here to guide you through the process, providing you with valuable insights and strategies to identify properties with potential for a favourable purchase. From understanding market trends and conducting thorough research to negotiating skillfully, we have the knowledge and expertise to help you make informed decisions and seize opportunities that can lead to substantial savings.
Let us help you unlock the potential for a favourable purchase in Australia.
Everything you need to know about favourable purchase Australia
A favourable purchase in Australia refers to acquiring a property at a bank valuation higher than purchase price.
It means securing a property at a market value that is advantageous to the buyer, offering potential savings or investment opportunities..
A favourable purchase can present buyers with the chance to build equity, achieve higher returns on investment, or simply acquire a property that aligns with their budget and financial goals.
What are the conditions to be able to make a favourable purchase?
Various types of properties have the potential to become a favourable purchase in Australia. Here are a few examples:
Distressed Properties
Properties that are in poor condition or in urgent need of renovations or repairs may be priced below market value.
Off-Market Opportunities
Sometimes, sellers prefer to keep their property sale discreet and may not list it publicly.
Auctions
Auctions can create opportunities to buy properties under market value, especially if there is limited competition or if the property fails to meet its reserve price.
Motivated Sellers
Sellers who are highly motivated to sell quickly, such as due to financial constraints, relocation, or personal circumstances (i.e., selling property to family below market value), may be more willing to negotiate a lower price.
Market Fluctuations
During downturns or slower market periods, sellers may be more open to accepting offers below their initial asking price, providing opportunities for buyers to secure a favourable purchase.
Benefits of a favourable purchase
Drawbacks of a favourable purchase
Buy without a
deposit
When making a favourable purchase, it is possible to buy a property without a traditional deposit. This is because the lender calculates your home loan based on the property’s true value rather than the purchase price, effectively gifting you equity in the property.
Here’s how it works:
Let’s say you find a property that is being sold below its market value, and the agreed purchase price is $400,000. However, when the lender conducts a valuation of the property, they determine that its true value is $500,000. In this case, the lender considers the $100,000 difference between the purchase price and the property’s true value as gifted equity.
Typically, lenders require a deposit, which is a percentage of the property’s purchase price. However, in a favourable purchase scenario, the lender may recognise the gifted equity as a substitute for the deposit.
In other words, the equity provided by the difference in value between the purchase price and the property’s true value can be considered as your deposit.
Avoid paying Lenders Mortgage Insurance
Another major benefit of a favourable purchase is getting an LMI exemption. How? LMI is typically required by lenders when borrowers have a loan-to-value ratio (LVR) higher than 80%, meaning they are borrowing more than 80% of the property’s value.
However, when you acquire a property below its market value, the true property value may be higher than the purchase price. This creates an opportunity to secure a loan with a lower LVR, potentially falling below the 80% threshold. As a result, you may not be required to pay LMI or may qualify for a reduced LMI premium.
Here’s how it works:
Let’s say you find a property with a market value of $500,000, but you negotiate a favourable purchase price of $400,000. Typically, if you were borrowing 80% of the property’s market value ($400,000), you would be required to pay LMI.
However, in this scenario, your loan amount would be 80% of the property’s true value ($500,000), which is $400,000. Since your loan falls within the 80% LVR threshold, you may avoid the cost of LMI altogether.
However - you may have to pay higher stamp duty
When making a favourable purchase, it’s important to consider the potential impact on stamp duty, as it may vary compared to a regular property purchase. Stamp duty is a state-based tax imposed on certain transactions, including property transfers, and is calculated based on the property’s market value or the purchase price, whichever is higher.
In the context of a favourable purchase, where the purchase price is lower than the property’s market value, the stamp duty may still be calculated based on the market value rather than the purchase price. This means the stamp duty amount may be higher than if you were purchasing the property at its market value.
Consult with a conveyancer, solicitor, or relevant government authorities in your state or territory to understand the specific stamp duty implications for a favourable purchase.
Can I get a favourable purchase home loan?
Of course! And the team at ZEP Finance can certainly help you with that. Our experienced mortgage brokers specialises in assisting clients with unique financing needs, including favourable purchases.
We understand the intricacies of this type of transaction and can guide you through the process. At ZEP Finance, we have established relationships with a wide network of lenders who offer favourable purchase home loans. Whether you are purchasing a property below market value, negotiating with family members, or exploring off-market opportunities, we have the knowledge and resources to help you navigate the lending landscape.
Fill up the form on the right to get started on your homeownership journey today!
FAQs on Favourable Purchase in Australia
Yes, it is possible to make a favourable purchase from a family member, as long as both parties agree on the purchase price and comply with legal requirements and regulations.
The bank valuation of property may take 1 to 2 weeks to complete, but it can be shorter or longer depending on the circumstances. It would depend on factors such as property type and location, property accessibility, demand and workload, valuer availability, and lender processes.
The purchase price in a favourable purchase is typically determined through negotiations between the buyer and the seller, taking into consideration factors such as the property’s market value, condition, location, and the seller’s motivations.
The eligibility for first home buyer benefits or grants with a favourable purchase may vary depending on the specific requirements and regulations of the grant programs in your state or territory. It’s advisable to check with the relevant government authorities or seek professional advice to determine your eligibility.
LVR stands for Loan-to-Value Ratio, which is a term commonly used in the context of home loans. LVR represents the proportion of the loan amount in relation to the value of the property being used as collateral for the loan.
The LVR is calculated by dividing the loan amount by the appraised value or purchase price of the property (whichever is lower), and then multiplying the result by 100 to express it as a percentage. For example, if you have a loan amount of $300,000 and the appraised value of the property is $400,000, the LVR would be 75% (calculated as $300,000 / $400,000 * 100).
A conveyancer or solicitor plays a crucial role in a favourable purchase by handling legal aspects, conducting property searches, preparing legal documents, advising on contractual matters, ensuring the transfer of property ownership, and protecting the buyer’s interests throughout the transaction.
The purchase price in a favourable purchase is typically determined through negotiations between the buyer and the seller, taking into consideration factors such as the property’s market value, condition, location, and the seller’s motivations.
It’s important to consult with a legal professional to understand any legal considerations or risks associated with a favourable purchase, such as contract terms, property title issues, and potential liabilities.
Yes, once you own a property acquired through a favourable purchase, you have the flexibility to sell it at its market value. This allows you to potentially benefit from any appreciation in property value since the time of purchase.
Yes, a favourable purchase strategy can be used to purchase your first home. It may provide financial advantages and help overcome affordability challenges for first time buyers.