Land Loan first and Construction Loan Later (Does it work?)

Hi guys,

I have paid the deposit of 5% for land. My plan is apply for land loan first when it titles and then the construction loan.

No the query is, I already own a home and paying mortgage on it.

I have spoken to the broker clearly about my existing mortgage and she said its very common to go for land loan first (She said I can afford the land loan easily on my wages and don't need any proof of construction document ) and in few months time, then go for the construction loan when we have enough money saved up. My new estate has no time frame on when to build.

Now, few of my mates have confused me saying, they don't finance your land first if you have a existing mortgage as it only paying for dirt, so they consider only House and Land loan together, how true is this? Funnily, two of my mates have done as I was planning to and had no issue getting it done.

So what's the catch of not getting the land loan first, apart from the service ability?

Thank you.

Your broker is the professional in this area - you aren't aware of your mates full circumstances... if your broker is confident affordability is there for the land loan on its own then you should trust her. Ask the question and get reassurance.

Perhaps your mates aren't in the same financial circumstances as you - they may owe more money or have less income.

I have clients now with land loans (only) and no build approval (yet - pending savings) very much similar to what you describe.

Good luck with the purchase

Thank you so much, yes I called her up again and she said yes of course, it's easy for you to get land only based on my circumstances. Thanks so much for backing the statement and the useful information. Much appreciated

Be aware though that credit policies change and it it spossible you could be in a position where you're holding vacant land and can't get a construction loan.

If you're finances are plump, you shouldn't have an issue though.

I just want to know when i buy a land and paid LMI for land amount $180000 and then for construction loan if i put deposit 10% Do i need to pay LMI only for construction loan or Both Land and construction?Asking this cos there is a few confusion when i apply constuction loan i paid LMI more than Land loan.I thought i will pay only pay for construction loan but it looks like i am paying both again.

If you're borrowing more than 80% on either transaction, you pay LMI. The LMI is factored on how much you're borrowing. Construction is usually more than land, so yes, you'll be paying more LMI on the construction.

Mine is less than land price when i purchased the land $200000 put deposit 10% ,And paid LMI $3034
When i apply contruction bank valuation is $400k The construction price is $186000 and put deposit $20000, and construction loan amount $165000 LMI $5659

Is the land loan now rolled into the same loan as the construction loan - ie you have one construction loan that covers land and construction?

In anycase you're paying LMI over the whole borrowing because you did a land loan separately and at over 80%LVR. Now you're borrowing more money and the total lend is still over 80% LVR. So you pay more LMI.

Thanks .Yes it has been a year and half since i bought a land and paying my morgage repayment and now refinance for construction loan which is $185000 and paid deposit $20000 so i think i will only need to pay LMI for constuction loan but i paid for whole loan amount

It's really something you should've discussed with your broker, but depending on how exactly they structured there could be opportunity to get lmi refund or take into account the LmI already paid.

Not how it works. Sorry.

There isn't in this scenario.

Hi Bec! Would love to hear your advice on my case. I have purchased land first and fixed it for 2 years. Now I'm ready to build. Should I consolidate the loan? And if I do, will I get penalised for not completing the fixed duration?

Would I be better off having the loan separated for land and construction?

Thank you again

Hello! Without knowing your personal circumstances can only say generally….
It’s no better or worse to bring it into one loan or not
Except - you may be able to have it all interest only if you combine it
And you may incur a penalty for breaking the fixed period if the rate is different than todays.

On the flip side, you’re unlikely to get the same fixed rate again so if you don’t need to break if (don’t need interest only etc) perhaps think of keeping the two separate still.

Thanks Bec! I would have thought so too, given really low fixed interest rates prior months ago. thanks for the insights