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How much equity do I need to have in my current home, for a bank to consider it as security towards buying a small investment property? We are on a very low, base income at the moment, and I would estimate our remaining mortgage represents about 20% of the property value.
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There isn't really a minimum, but you would ideally have more than 20% and the over and above usually will be the amount of deposit that you have. You can draw out more, but it will cost you in terms of mortgage insurance.
Obviously, your serviceability may present a problem if you're on low incomes.
Hi Shay,
It appears you are in a very strong equity position and that would not prevent you purchasing an investment property. You may be restricted by your current income. I would suggest you sit with an experienced mortgage broker who can calculate your borrowing capacity taking into account all of your assets, liabilities, income and expenses.
Good luck
Regards
Scott
Hi Shay,
As a rule of thumb & to avoid mortgage insurance, you should work towards having total equity in all properties combined of at least 20% as most lenders will lend up to 80% of the value of the property mortgaged so long as you can service the debt.
As an example, the easiest way to work out if you have the equity or not would be:-
Current debt $200
Proposed debt for investment property $300
Total debt $500
Market value of your existing house $400
Market value of investment property $300
Total market value $700
Maximum lend @ 80% = $560
And so long at the total debt is less than the maximum lend (which in this case it is, ie. debt $500 / maximum lend $560), you know you have sufficient equity.
As some of the other experts here say though, the primary concern of any financier is the ability to service the debt, but this is at least a start.......
Good luck.
Hi Shay
As far as sufficient equity goes, it sounds like you have more than enough.
In the years gone by, this would have seen you get the loan without too many issues, however under the existing legislation, first & foremost you need to demonstrate your ability to repay your current & new loans.
They will take into account the potential rental income you'll receive, plus possible negative gearing benefits, then calculate affordability.
Best thing for you would be to speak to a broker, as every lender has different methods of assessing affordability & varying amounts they will lend you.
Cheers
Craig