Browse Forums Buying Land 1 Aug 08, 2022 3:06 am I have bought a land paying 10% deposit. I am expecting the land to be titled in Q1 2023. I am planning to pay another 10% when I apply for land loan so that I don't have to pay LMI. Total cost- 500k Deposit -100k Loan - 400k Is it fair to assume the bank valuation will be around the same as the land purchase price? Do I need to arrange for more funds to avoid paying the LMI ? I am also planning to apply for a construction loan. How will the LMI be calculated assuming this will be a separate loan with a different or same bank. Total cost of the build including site cost- 700k Deposit - 150K What about the bank valuation. Is it usually the around the same as above 500k+700k=1.2 mill I would have paid 250k deposit for both land and construction. Since LVR is around 80, I guess I dont have to pay LMI for construction loan. Re: Land and construction loans 2Aug 08, 2022 4:59 pm karthicss Is it fair to assume the bank valuation will be around the same as the land purchase price? Do I need to arrange for more funds to avoid paying the LMI ? It will depend. When we purchased our land it was valued about 15% above the contract price, this was a contract signed in April 2021 and titled in April 2022, for the purpose of the loan though the LVR calculation was done on the contract price not the valuation price, broker explained it as having something to do with the timing of the sales contract to loan application, and if we could have waited another week (we really couldn't) to apply for the loan they'd have been able to use the valuation instead as it would have been >12 months. That said, do prepare for the possibility of it being valued lower due to rate rises and similar that are now having a slight impact on property prices. karthicss I am also planning to apply for a construction loan. How will the LMI be calculated assuming this will be a separate loan with a different or same bank. Total cost of the build including site cost- 700k Deposit - 150K What about the bank valuation. Is it usually the around the same as above 500k+700k=1.2 mill I would have paid 250k deposit for both land and construction. Since LVR is around 80, I guess I dont have to pay LMI for construction loan. Again this will depend. We are currently in the process of applying for the loan for construction now, we had a new valuation done and it is broken down into land and construction valuations. Our valuation in April and the valuation done last week came out at the same price, but the construction portion came out at ~8% lower than our contract price, but in terms of LVR calculation it is done on the 2 combined, due to how it all worked out our deposit contributions have ended up at 20% of land and 19% of construction, with no LMI. My experience however is heavily reliant on my situation and you should really get an opinion from your broker if you're using one, as they'll likely have a better feel for what the expected valuation is in your area and tailor advice to that. Our broker nailed our valuation to the dollar, so they can be pretty good at this Re: Land and construction loans 3Aug 09, 2022 10:07 am Nothing is certain in the current market. The other thing that add uncertainty is whether your land contract has a sunset clause in it, allowing the developer to cancel your contract before titles are issued if the land increases in value to a point making it not worthwhile to the developer to keep the original contract in place. Hope you’ve had this checked. Its basically not fair to assume anything at this point. Buying land and constructions are currently so volatile that you have to expect and plan for the worst and hope fo the best. Banks have and will continue to tighten their lending policies and even though you may be able to afford stuff base don todays figures, there’s no guarantee the bank will see it that way when its time for you to start looking for a builder. When it comes to construction loan, your loan will need to be rolled up with your land loan – that is to say, both liabilities will be under a single loan. You will be refinancing the land loan into a construction loan. This is because if you default and the bank needs to recover costs, it cant be fighting another bank about who owns what portion of the Assets - ie you cant sell just the house without selling the land. It may be possible to keep them separate if you are borrowing for both from the same bank. Valuations on construction are always conservative and if youre building in a new estate where there is little history of sales of established homes, it will be even more conservative. Again, you cant be certain of anything at this stage. The valuers will be comparing your contract price to the price of sales in the area. If ther eis nothing comparable you could be over capitalised by default and have to pay LMI anyway. Be prepared for that with either more cash to contribute or be able to absorb the LMI. Be aware that even if you fall into a igher LVR requiring LMI, the bank may apply some shadow limits to what LVR they accept for the area – ie, they may not allow 90% LVR in your suburb lending even though you could get LMI for a loan with 95%LVR. If you want to avoid LMI you will need to have covered at least 20% of the full debt at the time the valuation is prepared. – ie you will need ot have the construction contract signed and submitted for assessment and the valuation redone on land + the construction valuation and come in at 80% LVR or under. That figure is likely to be different in 2023 than it is now. In what direction is uncertain, but you can make some pretty educated guesses. Now are you also basing your 700k build cost on a sticker price of a home today? Or have you built some fat into that and estimated that that’s what the house will cost to build in 2023-2024? Because I can tell you now, the house I’m about to move into that I had a contract price of ~500k to build 12 months ago is ~700k contract value today. In summary, you’re in for a bit of a wild ride unless you have the capital reserves to prop up the transactions should things go in n unfavorable direction. Lastly, there’s no guarantee that a builder you choose today will be operating in 2023. So do your due diligence. Dark matter scientist, can breathe underwater, mind reader and can freeze matter just by willing it. Trust me, its in my sig. Thanks very much! And would the landscaper/contractor generally involve the engineer or is that something the client would do? Thanks for your help 2 10125 DIY, Home Maintenance & Repair That laser level looks lovely! 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