Home Loan ToDo List for Buying Investment Property

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Work out your investment strategy

There are many ways to invest in property and many ways to arrange the finance for your investment.  While you’re reviewing your options its best to meet with us to go through the finance issues involved.

Start with a typical 100% loan strategy

A typical strategy for new property investors is borrow against the new investment property and get the rest of the money from refinancing the loan on your own home.  Even if this isn’t your intended investment strategy it’s a good benchmark to compare to other options.  We’ll use this 100% loan strategy for the rest of this ToDo list.

Assess where to invest

Property investment is all about buying at a low price and selling at a high price.  You want to fund the location and type of property which is good for buying now but is likely to have high value growth in the future.

Get a Location Analysis Report

We can provide you with reports from one of the leading property analysis companies in Australia.  These reports assess each area in Australia and provide predictions of future growth.

Calculate how much you can increase the loan on your home

Follow the “Refinance – More Money, Better Deal”  ToDo list to work out how much additional money you can borrow against your home.

Calculate what you’ll pay for your new home

Start with the amount you’d like to pay for your investment property

Calculate stamp duty using our Stamp Duty Calculator

Add stamp duty to the purchase price and add at least another $1,000 to allow for other costs (e.g. legal fees)

Work out how much money you have

List all sources of money you have for the purchase including:

  • Home loan refinance/increase
  • Bank accounts
  • Term deposits
  • Shares
  • Gifts from family/friends

Estimate what your rental income will be

You can usually use your future the rental income to work out how much you can borrow.  Most lenders will reduce your rental income by 20% to allow for costs on your investment property.

Estimate how much you can borrow

List all sources of taxed and untaxed income including future rental income

List credit card limits

List monthly finance (e.g. lease, personal loans) repayment

Put these numbers into our home loan calculator “How much can I borrow?”

Will you be paying mortgage insurance?

If you are borrowing more than 80% of the purchase price then you’ll be charged mortgage insurance.  The exact amount will vary between banks and depend upon the size and percentage of your loan.  The amount could vary from a few hundred dollars to around 3% of the loan amount.  Call or email us to get a more exact figure

Check if you are in the “ball park” and adjust you purchase price until you are

Calculate whether the money you have plus the loan (less mortgage insurance) enough to pay for the total cost of the property (purchase price plus all costs).

This is just a check to see if you’re dreams are close reality so don’t worry if you are a little short of money because we may be able to help you close the gap.

Find out how property tax deductions impact on how much you can borrow

The interest on an investment property is typically claimable as a tax deduction.  Some lenders will take this interest into account in their home loan calculators and others don’t.  This can have a big impact on how much you can borrow.  Talk to us about which lenders have the best home loan calcalators.

Find out how the type of property you want to buy will affect your loan

Decide what type of property you want to (e.g. existing home, buy land and build house, off-the-plan purchase, inner city apartment, rural property)

Discuss with us how these different types of property may affect your costs and how much you can borrow.

Find the bank which will lend you the most

So far you have been working with rough estimates.  Every bank or non-bank lender has their own home loan calculator and their own rules about how they calculate income, expenses and your available.

As we have the calculator and rules of all our banks and lenders we can find you the one which will lend you the most

Consider a “same bank” or “different bank” loan strategy

There a good reasons why you’d have your property investment loan and your home loan at different banks, and good reasons why you’d have them at the same bank.  It depends on your personal circumstances and preferences.  Talk to us about the pros and cons.

Consider a loan that’s best for tax time

Setting up your loan accounts to separate out home loan interest from investment interest will save you tax and accountants fees at tax time.  Ask us how this can be done with your chosen loan.

Think about IO/P&I; fixed/variable; basic vs full feature loans

Don’t forget about the features of your loan.  There are pros and cons of various features like interest only vs principal and interest loans; or fixed vs variable rate; or basic vs fully feature loans.  Your choice will depend on your circumstances and preferences.  Talk through these choices with us.

Choose the best deal

Once you have a short list of loans you can review interest rates, costs and conditions to see which is best for you.  You can then choose whether you keep the same loan you’ve been using or change to a better one.

Apply for a loan pre-approval

Before you go shopping for your new home be sure your selected bank/lender will lend you the money by obtaining a pre-approved loan for the amount you want.  The bank will want an application form and various supporting documents to verify your identity, income,  savings, some expenses, current borrowing limits, and estimated future rental income.

Find a property you like

Now you know how much you have to spend on a property you can go looking and make sure you stick to your spending limits.

Check you are not paying too much

To make sure you don’t pay too much for your property we can provide you with a property value report from one of the leading property analysis companies in Australia.  This report will estimate a marketing value and give you a list of similar properties recently sold in the area.

Find a lawyer to help with contracts and settlement

Select an experienced property lawyer to advise you on the contracts for the sale and purchase.  The lawyer will arrange all the legal requirements of settling the sale of your property.

Sign Contract “Subject to Finance”

When you sign your Contract of Sale for your property you will not have unconditional approval on your loan so make sure you have a condition on your contract that if you can’t get your loan the contract is cancelled.

Arrange for the bank to value your new property

Give us the signed contract for your new home and we will arrange for the bank to do a valuation.  If the bank valuation is lower than your purchase price the bank is likely to reduce the amount they will lend to you. This means that you’d need to put in more money.

Obtain Full Approval

Once the valuation is complete you will receive a full approval from the bank and you can confirm your sale with the seller.

Sign and Return Your Loan Contracts

Once the loan is fully approved you will be given loan contracts to sign.  Each bank does this differently and there can be quite a lot of paperwork.  You’ll need these documents explained to you by an experienced professional advisor.  Give the contracts back to the bank/lender.

Get your Property Insurance

Arrange insurance for your property.  Most lenders will not approval loan to settle until you show them proof that the property is insured.  Even if they didn’t you should have it anyway.

Get confirmation from bank they are ready to settle

Make sure the loans area of the bank has your signed documents, they have checked them, and they are happy that everything is correct and complete.  Be patient and pro-active here.  Don’t assume everything is done and be prepared for more than one phone call to get confirmation.

Prepare for Settlement

Your lawyer will arrange settlement documentation and timing with the seller and your bank.  Find out how much you’ll need to pay at settlement and make sure you get it to your lawyer ready for settlement.

Select a property manager

Most investors engage a property manager to find a tenant and manage rent payment and the property.  It’s best to do this before your property settles so you can get a tenant as soon as possible after settlement.

Settlement

You won’t usually attend the settlement.  You’ll usually get a call from your lawyer to say it’s done.  Sometimes a last minute issue can delay settlement.  Make sure it isn’t you who causes the delay because there can be late payment penalties in your Contract of Sale.

After settlement

Make sure you know how your loan repayments are being paid.  Usually this is a direct debit to a bank account.  Make sure you have enough money in the account and make sure that you still have enough money there if the rent payment is late.  Payment defaults can lead to substantial late fees.

Tenants Move In

Congratulations, you’re a property investor.

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Three (3) more Home Loan ToDo Lists

Here are three (3) more Home Loan ToDo Lists that you or your friends can use