Today we have been juggling around figures, calling banks and working through servicing calculators all in the name of high LVR!
What does this mean? LVR is Loan Value Ratio and is % of the loan against the value of the property. I am often asked by clients “how high can we go?” We have two sorts of highs with mortgages.
The first high is your borrowing capacity. You borrowing capacity calculates how much you can afford to pay in regards to loan repayments. It only takes into consideration your money coming in and money going out. Eg income, credit cards repayments, personal loans, rent received or paid.
The second high is your purchase capacity. The purchase capacity looks at what value property you can afford to purchase. This calculation looks at how much deposit / equity you have available plus your borrowing capacity to tell us what you can purchase. If you have no savings or equity then your purchase capacity could be $0. The purchase capacity is closely tied to the LVR.
It is possible to have a borrowing capacity of $500,000 and a purchase capacity of $0 because you have no savings. Why? Because the banks will not lend 100% LVR of the property value. Guarantor loans are an exception to the rule but that is another blog story (coming soon).
So how high to the banks let you go? Each bank has a different policy but outside of guarantor loans the highest you can go is 95%. Of course it is important to note that at such high borrowing ratio’s you are required to pay Lender Mortgage Insurance. There is a possibility of a loan at 95% plus LMI where the LMI is added to the loan amount. Having said that this is not a standard policy among the banks.
High LVR options are ideal for first home buyers as they can find it hard to have the savings available for a deposit. Important to note that at such high LVR it is common for the lenders to request your savings is genuine savings.
If you want to avoid paying Lenders Mortgage Insurance then you need to take a look at an LVR of 80% of less.
What factors impact your LVR? Your LVR will be totally dependent on purchase price and how deposit you have available. Remembering that you need cash to cover your stamp duty, legal fees and other incidentals.
This is why it is very important to speak to us before you start looking at property to ensure you know your borrowing capacity and purchase capacity so you are looking in the right price range.
Now it’s back to the calculators for me…
Related Tag: Investment Property Loan Australia