Finance for build?

Hi guys,

This feels like a totally newbie question/s - I've done a forum search but haven't been able to find anything that really answers it as best I'd like.

Scenario:

I'm currently living at home (and embarrased to say how old I am!) and based on my current financial situation, believe that it will be around the end of this year when I'll have a deposit of sorts saved up - not a lot, but enough to get a 95% loan on what I'd like to spend.

Looking around the area that I'm interested in, the pre-established homes that are within my price range also seem to need approx $50k of work done to make them "livable" (I know that I'm never going to get my "dream" home right off the bat, but I'm talking things like yard work, new kitchen - I'm a cook and can't abide a poky kitchen - replace things like hot water, flooring etc etc etc).

So that's brought me around to building. The H&L packages I've seen are all OK - nothing special, but then, you get what you pay for...

I've heard stories from friends and read online a bit about people who have tried to build, only to have the bank say that they won't lend them $X due to the house not being worth that much... are these exaggerated? Can you get the quote for final approval from the bank prior to signing the (no doubt iron clad) contract?

So I guess what I'm after is anecdotes, advice etc?

Can I find a H&L package I want, get everything squared away (ie: costs etc) based on a "subject to finance" clause with the builder? Is that the quote I would take to the bank for final approval? (I'd obviously have a pre-approval prior to know exactly how much I've got to play with). Would that also cover any changes I may want to make (I'm tall so would want kitchen & bathroom benches a little higher) and other inclusions like flooring etc - or are those expenses I'd have to find the $$ for myself?

Is it true that you can put in a clause subject to completion by X date? I ask as if I sign up for it at the end of this year/early next year, I want to be moving in within 12 months, not waiting and living at home with Dad for another 2 years!

Anyhow, thanks for any tips in advance - I'm just starting to get some research done now and would love as much info as I can find, from any source!

I'm not sure if finance would be the same for you because we bought the land 6 months ago but for us when we were ready to build we just had to take a building quote and floor plan to the bank. They then did an evaluation on the total package and work out how much they could finance us. After all that has been done they told us to get an actual contract.

I cant help with finance advise as we didnt go the conventional way, but I will move this to the right area for you

Thanks Bam, I thought I had it in the right one, but apparently not

Luvlee79 - that's what I thought about doing, but the idea of having to go through finance application twice was too much of a headache, so I think I'm going to go H&L

magikalcrab - Welcome!

I have some good and bad news for you

I give you the bad news first - with 5% deposit you wont be able to find finance for a Land and Home package! just not possible...the Min is 80% LVR for vacant land + build. There are 85% LVR out there- But that is the Absolute MAX ( unless you have a bit of equity siting somewhere, or your 1M+ client).
Land and building package it more of a headace, if the soil test for the land fails you wil be in big trouble. If there are big rocks on the land that the builder did not know about, it's going to be costly!!

....wow after all that, what is the good news?
1. you should be able to find a decent place with your 5% deposit, wait 1 year if the place has gone up in value; get the bank to re-value the place and top up your loan for the renovations ( cash out)
2. You can apply for a ganatuor loan with the help of your parents. this will allow 100% Borrowing, sometimes 110%.

Your dream is possible! but maybe the timing is not right

Regards
Michael

Hi Michael,

Are you saying the minimum deposit for a h&l package is 20%? Just a bit confused when you said with 5% deposit you wont be able to find finance for a Land and Home package! just not possible...the Min is 80% LVR for vacant land + build.

Thanks!

Correct ..Min 20%

Ahhh.. In my previous post where i was talking about buying land and building and we would put a 10% deposit down.. Will the banks not accept this?

Most banks 20%

There are some lenders ( credit union) that allows 10%- but it must be a strong or at least average deal...if you have defaults on your Credit file etc...then your going to have trouble.

Hmmm... that is ... well, somewhat disheartening. Without it sounding like the obvious whinging that I know it is, I have a friend who managed to do exactly that - borrow 95% for H&L package. However, she did have her parents as guarantors, so that could be what tipped the scale. Unfortunatley I don't think that my Dad's income would be sufficiant for a bank as a guarantor as he's 60 and only working part time now.

Given my current living conditions (with my dad) I ... well, it's not that I couldn't, but more like I won't live here for another 12-18 months on top of my forseeable plan to save the 20% deposit.

Can I ask - is there a reason that banks don't loan 95% for H&L? You'd think it'd be a relitively sure bet, especially with several builders like Rossdale who are offering the "fixed price" guarantee of quote = final cost.

Thanks!

I'm a little confused.. In researching products BankWest, Homeside & Westpac will lend to with a 5% deposit for house & land. I understand you need 20% deposit for no LMI but hadn't heard that is was 20% to build.

magikalcrab, the guarantor is for security not repayments. They would look at your income to service the loan but a guarantor is to supply extra security, so the guarantor would generally need to own their own home and the bank would use that. Arabella11, I'm a little confused too. I thought the 20% is purely to avoid LMI too.

Yes there are some 90+% construction loan out there...even 95% as you mentioned. but if you read the terms and conditions.
You will find it's more - 90-95% for land....and 85-90% for building. Having said that Bankwest does allow a "true" 95% LVR for construction, but you must make sure you have no hiccup in the building part or have 30-40k cash as backup.

Anything is possible, it just depends how "strong" ( good income, equity etc...) your deal is...

But a standard product for construction is the 80% LVR, and this is what "most" people apply for, not because of LMI- but due to the nature of the project.



Regards

Say for eg you take out the NAB Tailored Home Loan which allows you to draw down on your loan to make progressive payments to the builder. Is this classed as a construction loan?

Progressive payments to the builder = construction loan - yes it is.

Regards
Michael

magikalcrab - can i suggest maybe talking to a broker or bank. I have spoken with a broker this morning along with NAB and they have both said max 95% lvr is based on the total purchase price.

Thanks Arabella, I'm definatley going to have a chat to one some day. I just like to have a bit of knowledge before talking to the "pros" so I don't get taken for a ride!