Browse Forums Building A New House 1 May 14, 2014 1:51 pm Hi all, I've been trawling these forums for months now and they have been a wealth of information. A little background; my husband and I are looking at knocking down our house (which is having some major plumbing and electrical issues as well as previous termite damage even though it's only around 30 years old) and rebuilding. We have a relatively small mortgage but would need to borrow a further $300K to build the house we would like. This amount would include the demolition of our current house and most finishings on the new house. We are having a little trouble understanding how the financing works for a KDR though. We would like a construction loan, but I'm not sure how they will work out the equity - do they base it on the finished house, or only on the land value? We want to avoid paying mortgage insurance so this is important. I spoke with our bank earlier today but they were little help to me and it seems I'd have to fill in the loan variation before I got a chance to speak to anybody who actually knew what I was asking. Any advice/help/explanation you can offer me would be much appreciated - thanks! Follow my Coral Daydream 28 build: https://forum.homeone.com.au/viewtopic.php?f=31&t=72384 Re: Financing for Knock Down Rebuild (KDR) 2May 14, 2014 2:45 pm Welcome Mellywil, We're doing a KDR and just received finance approval. In our case, we used a mortgage broker who guided us from the start. He was able to give us an indication of our borrowing capacity and then eventually take us through the loan application process. With a guide on our borrowing threshold, we were able to approach a builder with a budget in mind. The broker is paid a commission by the bank and didn't cost us a cent. In fact, he probably saved us money through lowering our variable rate with the same package we already had with the bank. We then went through the process of negotiations with the builder on design and finish and executed a contract subject to finance approval. Our building contract was then presented to the bank for approval. To analyse our situation and approve the loan, the bank prepared a valuation report on our re-built property. They took into account the land value of the property and the building contract price. They then assessed the property with a 'unfinished' house on the block. e.g because we haven't included our finishings in the build contract (i.e. flooring, window fittings etc.). So all up, our valuation came in approximately 10 per cent less than the land value plus the value of our building contract. I doubt this would be the case for all builds, but gives you an indication of our experience. I also got the impression that we could have challenged the valuation process if we were unsuccessful with our applicaiton. Best of luck. Re: Financing for Knock Down Rebuild (KDR) 3May 14, 2014 3:05 pm Goodluck with the KDR Mellywil. We are also doing a KDR and most probably will start the build in July. Our case is very similar to what D_rail has summarized in his reply. We are with one of the big 4 banks and we've our own mortgage broker who assisted us in this process. At the end, the banks will evaluate your land value + contract value + any equity that you might have and decide on the lending. Re: Financing for Knock Down Rebuild (KDR) 4May 14, 2014 4:29 pm Thanks so much for your replies, especially the detail on the valuation process D-rail. When we first bought our house - and it is our first house - a decade ago, we went through a broker. I would have no idea how to get in contact with them now though, I guess it's time to try and find a new one. Looks like we might have put the cart before the horse a little - getting a quote before checking out the financial situation. We know what we can afford AND be happy with though so I guess it's not too bad. Follow my Coral Daydream 28 build: https://forum.homeone.com.au/viewtopic.php?f=31&t=72384 Re: Financing for Knock Down Rebuild (KDR) 5May 14, 2014 4:59 pm We went through ing direct and their process was based on an estimated value of the final property. Basically new property value - existing loan > construction cost. Bare in mind that LMI still applies if your new loan amount is over 80% of the new property value. Re: Financing for Knock Down Rebuild (KDR) 6May 14, 2014 5:14 pm We went through ANZ ... our process was similar to D_rail's, except for us the bank valuation for the finished house came back well above 80% of (the amount we owed + the amount we were spending). The branch manager seemed to think it was too low (I don't know how it was going to affect us as we weren't going to borrow more than the house cost to build anyway) and asked for a re-evaluation on the basis that the valuer had missed a few things out; he came back ~$200k higher again. However, before getting full approval we embiggened our existing mortgage against the existing house. The problem we were solving was that the bank would only do a construction loan for the amount the builder was charging; but the builder isn't doing driveways & landscaping & some interior fittings/electricals. So we wanted to be sure we had enough cash sitting in our offset account to cover all that stuff we're doing after hand-over, as well as having some emergency-money left in the offset-account when all's said & done. Re: Financing for Knock Down Rebuild (KDR) 7May 14, 2014 8:58 pm Good point Forg. We will have to crunch the numbers a bit more before committing to the loan. Thanks again guys, I'm feeling much more confident about the process now Follow my Coral Daydream 28 build: https://forum.homeone.com.au/viewtopic.php?f=31&t=72384 Re: Financing for Knock Down Rebuild (KDR) 8May 14, 2014 9:38 pm If you are trying to avoid mortgage insurance, you will need 20% equity of your vacant land value + your build cost. We avoided mortgage insurance only just, so the bank wouldn't lend us money for the demolition because they would only lend for land and the house build. We were trying to negotiate with the bank directly and it was very difficult, it was like they had never done a KDR before. I may have just had a bad lender but we ended up going to a broker who was much clearer and even placed the loan with the same bank in the end. For items that we were doing after handover ourselves, we just got quotes to provide to the bank. Re: Financing for Knock Down Rebuild (KDR) 9May 15, 2014 12:21 am Hi all... Here is my experience and 2 bob's worth... We purchased our first house about 17 years ago and have been with the same lender the whole time. Due to borrowing against our equity to get a better lifestyle (cars, motorbike and pool) we still owed plenty of money. We originally went to a broker (who was recommended to us) as we didn't know the process we needed to follow.... He was very informative and thought we were on a winner as one of the 3 borrowers he used were the one we were with... This did not give us the result we needed. It came to light we were about 60k short... It was basically down to over-capitilisation. We went back into our shell for about 8 months and thought we would try again. This time we cut out the middle man and went directly to our current lender, as they would have a vested interest in us improving their investment. Unfortunately this too was a non event. I had to fight just to get an explanation out of them. All they were offering was a no...sorry.... I did however eventually get a "your the perfect borrower, but we still can't" Frustrated we went to one of the bigger banks... and only a few weeks later.... we have approval to proceed! We already had picked the builder and plan...and had the pre-tender price to submit. Moral of the story - don't give up. Know what you can afford and shop around for the best deal. Re: Financing for Knock Down Rebuild (KDR) 10May 15, 2014 10:25 am Hmm, to broker or not to broker that is the question! Follow my Coral Daydream 28 build: https://forum.homeone.com.au/viewtopic.php?f=31&t=72384 Re: Financing for Knock Down Rebuild (KDR) 11May 28, 2014 3:13 pm Hey Mellywil Let me know if I can help at all. I use to be a mortgage broker (many years ago!) so can help you out with the rules etc if you get stuck. But the guys here on the forum have it right. Anyways here if you need some help. PM me and I can always give you a call and answer your questions. And there will be no pressure cos I can't help you directly anyway although am still aware of which banks can help more so than others. Yvonne Re: Financing for Knock Down Rebuild (KDR) 12Sep 24, 2014 12:19 pm There are several ways of financing a knock down rebuild depending on the circumstances of the persons involved. Bridging finance can be arranged if an existing home is owed and for sale. Depending on the ownership level of the home and land were the knock down rebuild is to occur has a bearing on which type of home loan you will be able to acquire. We've had the offer of a short term tenant whilst waiting for CDC/DA home approval and demolition for our knock down rebuild. It would achieve a pretty low rent as it's… 0 13752 Hi I live in a 100yr old semi and my neighbour added an additional floor last yr and our architect has advised that we can knock down our semi and build a free-standing… 0 37704 We were lucky in that our old house was so small (86 square metres) compared to the new house, they were able to take enough readings around the old backyard house before… 8 37142 |