Browse Forums Home Finance 1 Oct 19, 2013 5:51 pm Hi, My wife and I are at the pointy end of putting down a deposit for some land in a development in Melbourne. We are just trying to gauge the risk and the normality of such risk. We have been pre approved for $X amount which covers our land and building costs. We will have put in 20%. The catch is the land is not titled until March and therefore we can't get accurate site costs until then, therefore we can't get a building contract signed until we have all that. The bank won't approve the building costs until we have a signed contract. So we are faced with the dilemma of putting a deposit down for the land (10% - and the remaining paid at settlement) What we feel is the risk is waiting until March to get the second part of the approval for the building. Is this normal, we are worried about owning a piece of land then the bank backing out and not giving us the remaining loan for the building phase, is it likely we will get sent up the creek without a paddle? We are just wondering if this is the normal procedure? I hope what I've said above is clear, I'm still trying to get my head around it. I guess we don't want to end up with land we can't build on and have to sell due to developer time constraints. Can the bank approve a loan for the land and back out before we build? Any help with this GREATLY appreciated. Thanks in advance. RB Re: Can anyone help with advise with a Land & Construction l 2Oct 20, 2013 12:41 am Hi RB, That process you mentioned is basically how it plays out. Being so far out and not titled, you aren't able to get unconditional approval for even the land, and once you do settle that, the lender will need a fixed price building along with approved council plans and specifications before they fully approve the construction loan component. I have a document that I put together which details the land and construction loan process. If you want a copy feel free to PM me. Now in terms of your pre-approval, depending on the lender it actually may not mean much as it is always subject to numerous conditions and details may not have been verified. Issues you may find is that the valuation for the land may come back under purchase price. The market has been rising lately so it may be unlikey but you need to be aware that if things turn sour in the next few months, that come March the land may be worth less than you paid so the maximum amount the lender will allow will obviously be less as well. Likewise with the construction component. It might come back less than the actual building costs and thus the loan amount allowed as well. As for the bank approving the land loan and rejecting the building loan. All depends on whether your financial circumstances change in between. Cheers Tom Re: Can anyone help with advise with a Land & Construction l 3Oct 20, 2013 8:02 am digitalkiwi Hi, My wife and I are at the pointy end of putting down a deposit for some land in a development in Melbourne. We are just trying to gauge the risk and the normality of such risk. We have been pre approved for $X amount which covers our land and building costs. We will have put in 20%. The catch is the land is not titled until March and therefore we can't get accurate site costs until then, therefore we can't get a building contract signed until we have all that. The bank won't approve the building costs until we have a signed contract. So we are faced with the dilemma of putting a deposit down for the land (10% - and the remaining paid at settlement) What we feel is the risk is waiting until March to get the second part of the approval for the building. Is this normal, we are worried about owning a piece of land then the bank backing out and not giving us the remaining loan for the building phase, is it likely we will get sent up the creek without a paddle? We are just wondering if this is the normal procedure? I hope what I've said above is clear, I'm still trying to get my head around it. I guess we don't want to end up with land we can't build on and have to sell due to developer time constraints. Can the bank approve a loan for the land and back out before we build? Any help with this GREATLY appreciated. Thanks in advance. RB Get a loan for land ( loan 1) settle the land first, you have to pay20% upfront for only the land cost, When your land is ready for construction, apply(loan 2)for construction, now your lender will mix loan1 and 2 together ask you to pay upfront cost 20%. Re: Can anyone help with advise with a Land & Construction l 4Oct 20, 2013 12:14 pm Thanks Tom and Cameron32. Tom - I'll fire you a PM I would appreciate that document. From what I understand. We pay $Xk to hold the land. We get our lawyer to look over and process the contract. Once approved we pay 10% on the land as deposit (including the $2k already paid) subject to finance. We then have 20 days to get approved finance from the bank. (which we have had pre-approval for) The bank gives us approval. 20 days pass and the land goes unconditional, (we pay for the land upon settlement when titled in March.) At this stage all we are out of pocket is 10% of the land and have loan 1 from the bank (which they actually haven't loaned us anything but given us a legally binding document saying they will back us for the land in March) March comes around. The land is titled and we can finally get site costs and a contract with the builder underway. The land now needs to be settled, the bank honors their part and we settle the land. We get the contract from the builder which includes the cost of building and we approach the bank for loan 2. The bank approves the 2nd loan and merges the two into one loan. We now pay the remaining deposit (minus the 10% from the land that we have already paid?) (I'm actually thinking the bank has already made us pay our 20% deposit for the complete loan/mortgage at the point when the land settled??) We pay 5% deposit upon signing the building contract, I'm assuming the bank gives us that 5% out of the loan due to us already putting all our money in at settlement? The building starts and we pay the builder the first stage payment. Is that how it works? We are not sure if we have a building contract before the settlement of the land, the confusing part is the whole can't get site costs until the land is titled, therefore can't get loan until we have building contract. My head is spinning and ears blowing smoke. Thanks! RB Re: Can anyone help with advise with a Land & Construction l 5Oct 20, 2013 12:31 pm You are worrying too much mate. Need to wait until land to settle, your builder will prepare a tender for you, once you happy with that accept that tender you will paid to builder, then they proceed to next stage ,builder will prepare drawings to council. You can bring the tender to your lender and ask then to apply loan 2 and get pre appoval. Once you signed a building contract with your builder take into your lender, they will organise valuation and approved your loan 2. Re: Can anyone help with advise with a Land & Construction l 6Oct 20, 2013 9:46 pm digitalkiwi Thanks Tom and Cameron32. Tom - I'll fire you a PM I would appreciate that document. From what I understand. We pay $Xk to hold the land. We get our lawyer to look over and process the contract. Once approved we pay 10% on the land as deposit (including the $2k already paid) subject to finance. We then have 20 days to get approved finance from the bank. (which we have had pre-approval for) The bank gives us approval. 20 days pass and the land goes unconditional, (we pay for the land upon settlement when titled in March.) At this stage all we are out of pocket is 10% of the land and have loan 1 from the bank (which they actually haven't loaned us anything but given us a legally binding document saying they will back us for the land in March) As your land isn't settling until March it is somewhat an unusual situation so the lender won't be doing unconditional until closer to the date. You can get conditional approval however this far out it will be subject to satisfactory valuation and title being produced. Normally when the title is granted the developer advises you and gives 14 days to settle. digitalkiwi March comes around. The land is titled and we can finally get site costs and a contract with the builder underway. The land now needs to be settled, the bank honors their part and we settle the land. We get the contract from the builder which includes the cost of building and we approach the bank for loan 2. The bank approves the 2nd loan and merges the two into one loan. Correct. However the construction loan (2nd loan) would most likely be a separate loan working in conjunction with the land loan. digitalkiwi We now pay the remaining deposit (minus the 10% from the land that we have already paid?) (I'm actually thinking the bank has already made us pay our 20% deposit for the complete loan/mortgage at the point when the land settled??) We pay 5% deposit upon signing the building contract, I'm assuming the bank gives us that 5% out of the loan due to us already putting all our money in at settlement? You can pay all you deposit into the initial land stage and apply for full construction costs using equity in the land, however as the lender won't release money until they receive the full approved plans along with the building contract and the builder wont work on the plans unless they have received a deposit, it's a catch 22 situation so best to hold off onto at least 5% from your funds to pay builder. digitalkiwi The building starts and we pay the builder the first stage payment. At the first progress payment, any remaining deposit is first contributed by yourself and then the lender starts contributing via the loan. Cheers Tom Re: Can anyone help with advise with a Land & Construction l 7Nov 05, 2013 1:28 pm Thanks for helping out with this guys - in talks with the bank to firm things up. Re: Can anyone help with advise with a Land & Construction l 8Jul 31, 2014 9:20 am I think it is standard practice on most forums you visit these days. Due to spammers most forums won't let you send PM's until you've got past X many posts, which will vary from forum to forum, and really it is a good idea because as a forum owner myself, you don't want your valued members getting bothered by spammers. Often forum owners will require new members enter text answers when the make actual forum posts too, at least for the first 5 or 10 posts for the same reasons. Unfortunately for genuine new members it is a bit of a damn nuisance until they realise why this is required on a forum. Owner Building at Jimboomba Woods in Logan City Qld. Blog : http://bandlnewhomebuild.blogspot.com H1 thread : viewtopic.php?f=38&t=68283 . 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