First home buyer/build and question around loan process

Hi all,

We're getting close to starting our loan process with our mortgage broker and something that keeps going through my mind are all the other costs associated with a build and if I should add these to the loan.

We've purchased land in Box Hill NSW (The Gables, owned by Stockland) and are building a modified Hampshire 45. We have the land price and 95% of the build price done, but the other areas I'm not sure if we should include in our loan paperwork are:
- Landscaping w/ pool, deck (Front/Back)
- Vergola Patio Ceiling
- Solar and Battery Install
- Laundry, Pantry and WIR fit out
- Theatre fit out

As this is our first time, I'm keen to understand what some others have done with these ancillary projects and if you included these in your loan paperwork, or held it out separately.

Thanks and I'm looking forward to reading through some responses.

Cheers
Tim

I would probably reverse the question and ask whether you're ok paying for all of that out of your own pocket. Cause depending on what exactly you're doing that's another 100k if not more.

If you're ok to pay all of that I'd still give all the quotes to the broker so they have a full view of what the house is going to be like for valuation purposes.

when you say:

Do you mean you are borrowing 95% (ie 95%LVR)?

If so, all the additional stuff you mention will take it way higher LVR than any bank will consider.

If you mean something else, then theres a few considerations.

Whatever you borrow now to do work on the place will ultimately cost you WAY more over the life of the loan than if you paid for it out of pocket.

If the above is of no concern as you just see it as a monthly payment and the overall monthly difference is negligible in how you manage your finances - have at it. Finance the lot. Its done and you can forget about the associated stresses involved in doing it over the following years.

I dont know Box Hill NSW or the market there but if you over capitalise and cant front up the difference, the bank will ask you to scale back, or decline the lend.

My apologies and thanks for helping me see the oversight. No, we're not borrowing 95% LVR, it will be roughly 68%... I think I have this accurate as we have around 32% of the total loan ready for deposit.

strannik - Good question and it is what I was thinking... I'd rather not do all of this post handover as it will definitely be over $100K and I wanted to see what others have done.

NoName - Yeah true, the interest will likely mean we will pay more over the life of the loan and this is something I'll talk to me broker and planner about. I do know we're looking to go into debt recycling and offset investment accounts to help pay off the loan faster, so hopefully this will help.

Would banks see this as frivolous spending if we included it? Or as long as it's within our borrowing means, they wouldn't look at it negatively?

Hi Timlavelle, I suggest you to have all the items included and send it to your bank, this will make difference in your ToC valuation, the higher of your valuation meaning you can borrow more money from your build (if you have the borrowing capacity).

Personally, I would borrow the whole lot (or as much money as the bank allows) and keep my own money in an offset account.

That way you still have access to the cash if you need it and don't incur interest.

Agree and use this money as a buffet for your build, most of build will over budget at the end. And you can either repay your loan or keep it in your offset account upon completion.

yeep, opportunity cost is real.

Borrow up to 80% IMO and fit what you can into the loan. The missing metric for a more accurate discussion is the actual valuers valuation figure. Your current 68% is based on the assumption that the house will be valued at whatever the the contract price is, but 68% is a very respectable place to be regardless. The thing to keep in mind at the moment is that banks are tightening the screws a bit and valuations are currently conservative.


Banks don't think of adding things to homes as "frivolous" they just take the valuation figure and risk notes from the valuer into consideration and stack it up against your financials. You could put a disco ball and fog machine in your bathroom and a topiary of a ballerina in the front yard and they wouldn't care as long as the valuation stacks up.

another point to consider is that you generally get lower interest rates with lower LVR values. but you can always refinance after construction to get the benefit of that, once you know full build cost and final valuation.

it's something you should really be discussing with your mortgage broker though as it will depend on the lenders they use.

to answer your original question whether the banks care or not if you do those things: i believe they don't, but then they also don't include some things in a final valuation of the house. Solar is one example of that.

We added all of our extras to our build contract, including solar system. We got a separate quote for landscaping and fencing and included that in our finance too. Our bank valued house and land exactly what we paid, this was in November 2021 with a major lender. With all the uncertainty thay comes with building and the potential for extra costs, we wanted to ensure the bank was covering the majority.

Thanks strannik, noname, flamingo and Cbee for all the replies! Makes me feel more comfortable getting these included on the loan price. Also really good info on the LVR and how much to borrow against, we're speaking with the broker next week and I will bring these up.

timlavelle

I hope everything is going smooth with your build. Did you receive Bank Valuation for the land and how did you go? Any lot in box hill seems to be around 1 Million at the moment.

Thanks

Our registration is scheduled for March - May, but we got an email from Stockland telling us that they have submitted the DA paperwork, but due to backlogs, the land registration could be as late as June or July.

So, no loan or mortgage done yet.. but my wife and I have planned well and we are coming almost $100K under our budget and we have all the extras and variations we wanted as well.