How much can I borrow?
Nearly missed some really important information in this whole house-hunting business of securing a loan.
The two things that usually come to mind when we think about our borrowing capacity are the size of your deposit, and your income.
And sure, there are other things lenders consider, like whether you own or have owned a property before, your credit history, number and age of children and type of property (urban or rural, house or apartment).
But no one ever told me that the size of the property matters! Until yesterday.
So I did some homework, and found out about the LVR or loan-to-value ratio lenders will most likely apply when considering how much you can borrow.
Got the info from eChoice. For a standard residential property, the LVR is generally 95 per cent. For high rise apartment less than 50 square metres in size or a residential rural property, the LVR can be much lower (typically 70 per cent or less).
What that means is that you may have to fork out a hefty 30 per cent deposit for a studio or one-bedder. Not great news if you’re thinking of buying one of those shoebox-type units in the city, which, even if off–the-plan, could cost you more than $300,000. That works out to $90,000 for your deposit. Ouch. Definitely makes the first home buyer think twice doesn’t it?
Lesson learnt is this. Check check check. Check the size of the apartment you’re buying off the plan, especially in the city. They are not only expensive, but many of the new ones are small too. The difference between a 20 per cent and 30 per cent deposit is huge, and may price out some first home buyers.
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