Hi all,
I've spent a bit of time combing through the forum (invaluable so far) trying to piece together how the buying and financing process works as a first timer planning to build a house. I've never had a mortgage before or owned property so I'm trying to understand how everything fits together before I go and speak to a broker so I make sure I'm going about things in the right order and not wasting eveyone's time.
I'm working on a plan of maximum $430k budget for house and land, the land I like is around $200-220k leaving a max of probably 200-210k for the house. Based on 430k and current 55k savings borrow 375k (or less depending on any extra savings I can make up), gives me an LVR of just over 87% which I wouldn't think is very good and I'd like to get this as close to 80% to avoid LMI or keep money up my sleeve for flexibility in pre-start? to make upgrades. I have a few options to increase the deposit to get the LVR down to around 82 inside 2-3 months if needed.
The land developer requires 5k deposit and a letter of pre-approval for finance before signing land contracts. As I am not planning at this stage to get a house and land package through a builder, I gather I will need to obtain some quotes for the house in order to work out how much finance I need exactly and then apply through a broker/bank for a construction loan pre-approval.
I'm planning to meet with a couple of builders this week to go over some plans and try to get a reasonable idea of what sort of costs I am looking for on various options. At the moment the land developer has run out of the particular blocks I am looking for in the current releases so I"ll have to wait a little while before the land comes up again or go for something smaller which I want to avoid.
From what I've been able to pickup from various other threads I think the general process goes:
1. Apply for conditional pre-approval through broker/bank for the $375 or whatever amount needed.
2. (once pre-approved) Make offer on land subject finance approval, pay the $5k deposit from my deposit savings.
3. Decide on the house plan, get some sort of contract with nailed down prices from the builder subject to finance and council/developer planning approvals, pay any deposit required from deposit savings. (not sure how much this usually is?)
4. Submit 2 and 3 to broker/bank for valuation and approval.
5. Once approved from broker/bank, proceed to settlement on land.
6. Proceed with builder to start building process
Questions:
1. Do I need to supply land quotes or rough building price to a broker/banker for conditional pre-approval or can I just say I want to borrow 375k at this stage with actual approval stage requiring the full house plans for with council approvals and land price for the valuation?
2. Is there a certain type of quote you can get from builders to supply to broker/banker for valuation on your build without actually having to sign a contract to build?
3. If not, do you generally have to sign a contract with a builder subject to finance approval from your lender in order to get accurate enough costs for valuation to obtain finance with? The catch 22.
I.e you pay the builder a deposit to do the full design and council approvals which you then take to the bank for finance approval once all the council/developer approvals are complete?
Am I going about this the right way? Have I forgotten a major step in the process?
If you've read this far.. thanks so much
- SB
I don't know much about the process, even though we went through it as we signed up with a builder early on and bought a block in an established area.
The one advantage of getting to bellowing down is that you can then take things like flooring and window coverings out of the build and do them after (most builders charge a fortune for these kinds of things).
For the build you pay a deposit so they will do the plans, solid tests, survey etc on the block and then draw up a contract for the build. Once that is done and you sign off that is what is submitted to the bank for finance approval. If you don't get finance you don't get the deposit back as it is what pays for the survey etc. ours was $2000, if the build goes ahead it comes off the final contract price.
Whe. It comes to finance ip would assume you would just need a preapproval for the land part (though I may be wrong) which I would think involves showing the bank what you earn and have saved and they will give ore-approval of the maximum you would be able to borrow (usually way more then any reaosonable person would want to consider borrowing!) but it might be worth talking to a mortgage broker to get advice/input.
The building process is great fun and stress (and we haven't even got our slab down!) but I am hoping well worth it!
Good luck!!
With pre-approval, you just need to apply for the total land and construction cost as a whole, as depending on the lender the pre-approval will be subject to conditions, 2 of which will be acceptable security and valuation. Also need to keep in mind that pre-approvals are not all the same in terms of how reliable they are.
You can then buy land and go through the process of organising unconditional approval for that before chasing a builder and construction.
When trying to organise formal approval for the construction, lenders will need a signed fixed price contract as well as council approved plans. As fmac said, you need to pay the builder a nominal fee to do this, so money does need to be outlaid beforehand. The lender then values the construction based on the plans, etc and in a perfect world it will come back the same and you can proceed with the build.
Cheers
Tom
Hi SB,
Welcome to the forum; hope you enjoy your stay and feel free to ask away + share.
With a $55k budget ( presuming you have funds to pay for stamp duty or waived due to FHOG etc..?) i would suggest you apply for a 90% LVR, as high as possible... because with most if not all construction ; you will need spare cash ready more then you budget for
- Landscaping
- Upgrades
- Problems
- Fence
- Short falls
- Contingency
- Delays
- Interest!
-Valuation short falls!!!!
and most important as emergency cash ( personal)
You should have 2-4% cash as a min ready to be used, so essentially at the start before you "start the building stage and get stuck with the project" apply for a high LVR loan to free up your cash ( this is where shopping for the cost of the LMI is more important then looking for a bank with the lowest interest rate- a LMI can vary by thousands depending on the lender and loan strcuutre)
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Land settlement 1. Apply for pre-approval ( pre approval should be for land + construction! ) - last thing you want is the bank to reject your construction loan and your left with a vacant land + paying interest..
2. Find land + also might be a good idea to shop for diff builders quote as this will take some time
3. Get lawyers to get clause and conditions of the contract
4. Sign contract with $5,000 holding ( the $$ amount will depend on what you and the seller has agreed on)
- Reason why it's only a holding is because most major land sales in a massive project are "unregistered" meaning the vendor ( land owner) have not sold enough for them to apply for council approval yet
5. Once the land is registered and has it's own DP/SP number, the vendor will normally ask for the missing 5-10% deposit to finalize the deposit
6. Apply for full loan approval
7. 5-10% deposit handed over and land settles a few weeks later...
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Construction loan 1. Shop for quotes, each " project home " builder will provide you with their " standard" quote and price list based on the deigns/ project you have selected - this is normally free.
However if you go for a customized builder they will ask for an "commitment" fee before they even provide you with a quote.
2. Once quote and builder is accepted, you will need to pay the builder $5,000 commitment fee and they will progress to carry out soil test to make sure it's ok to build on and if they require any changes.
3. Loan approved as a progress payments loan.
Regards
Michael
Excellent information, thanks