Browse Forums Home Finance 1 May 25, 2008 10:48 pm Hi everyone,
My partner and I just bought a block of land and we've put a 10% deposit on it. We've gotten a bank's pre-approval before we bought the land. I just wanted to know, as we are going to build a house, we are not sure as to how much the house will cost us yet. We have an estimate of how much we would like to spend. When we go for a home loan with the bank, we want to have 20% deposit so that we dont have to pay LMI. But I dont know how much to save or what the 20% is because we dont know how much the house & land will cost us in total. Do you guys know how it works? Sorry, this doesnt seem to make sense. Can anyone understand my question? Any response would be greatly appreciated. Re: deposit on construction loan 2May 26, 2008 10:20 am You can just put it all into your land loan - when construction time comes, they will work out the 20% for the total amount and the equity in the land loan counts toward this, saving you paying mortgage insurance.
This also reduces your interest now on your land loan and your total loan amount is less once construction is complete. The money you are saving now is better saving you 8% in the land loan than earning you 6.5% in a savings account. Built Porter Davis "Dromana" 2007. Re: deposit on construction loan 3May 26, 2008 12:01 pm Thanks Vanderlay for your advice!
Although, I was thinking of maybe going for one loan for the land and house, rather than get two loans (land + house), wouldnt this save on application fees? I'm not sure how it all works, I just assumed that it's a better way. How did everyone else do it? Also, because the land doesnt settle till early next year, we havent gone for a loan as yet, therefore am not paying anything back at the moment. Just saving saving saving! Thanks Re: deposit on construction loan 4May 26, 2008 12:10 pm We have just the one. In theory I think we had a land loan which was paid out and a new loan created when construction started, but you never actually see all of that happen, you just see one loan get bigger...
We have a "professional package" loan (anyone can get one you dont have to be a professional anything) and only paid one package fee at the start and a small fee for the progress draws when construction started which covered all of the progress payments. We pay the package fee every year which gives us a discounted rate and free accounts and credit cards etc, so saves us hundreds each year overall. Built Porter Davis "Dromana" 2007. Re: deposit on construction loan 5May 26, 2008 1:50 pm wonderland We've gotten a bank's pre-approval before we bought the land. wonderland because the land doesnt settle till early next year, we havent gone for a loan as yet, A word of caution on this arrangement ... if your financial situation changes or if interest rates go up between now and settlement, you might not get the amount in your pre-approval. Also pre-approvals generally expire within 3 months of issue; after that you need to re-apply. You should seriously think about applying for the loan now, eventhough you don't need the money just yet. The bank will process the loan, but hold the funds until settlement ... therefore you won't be paying interest until then. wonderland Although, I was thinking of maybe going for one loan for the land and house, rather than get two loans (land + house), wouldnt this save on application fees? I'm not sure how it all works, I just assumed that it's a better way. How did everyone else do it? Different banks have different arrangements ... in our case we have 2 separate loans (with 2 different interest rates) for the land and the construction but we didn't pay any applications fees for either of them Re: deposit on construction loan 6May 26, 2008 2:04 pm Thanks Duminda for your advice.
When we went for the pre-approval, they bank was willing to give us alot more than what we wanted to borrow, so I thought we should be ok when we do eventually go for the loan. Also, with a 20% deposit, I think we got good odds of getting the loan. But I have heard that banks are getting more tougher with who they approve loans to and for how much. Hopefully we will be ok. I was worried about going for the loan now because we dont have the 20% deposit yet, we wont reach that target till the end of the year, and that's the main reason why i've prolonged getting the loan. I'm still confused about the 20% deposit thing. How will I know what the deposit is if I dont know how much i want to borrow? Re: deposit on construction loan 7May 26, 2008 2:41 pm Hi wonderland,
Ok, here's how it works ... First up, you apply for the land loan - you only need 20% of the land purchase cost as deposit at this stage. Say, you land purchase price is $200,000 and stamp duty, bank charges etc. add up to another $10,000, and let's say you paid 20,000 as 10% deposit on the land. What you need to have in savings in order to get the land loan going is: 20% of (200,000 + 10000) = $ 42,000 minus the 20,000 already paid i.e. $22,000 You don't need to have 20% of the construction cost at this stage. You only need this when you are ready to build. And you can work that out once you get a quote from your builder. Re: deposit on construction loan 8May 26, 2008 9:59 pm I think what happened to us was normal, but who knows.
What our bank did what let us know how much we could borrow as a maximum, calculated by adding 80% of the value of our existing house, plus 80% of the value of the block which we had already paid the deposit on, plus 80% of the value of the house we were going to build, plus any other cash assets (they wouldn't count shares though ) less any existing debt. If you don't know how much your new house will cost yet, an approximation is all that is usually required at this pre-approval stage. Mind you we didn't approach the bank until we had a fairly good idea, because we were well down the path with our builder before we got settlement on the block which was delayed for 6 months. When settlement of the block was required to be paid, our existing home loan was extended, because of the equity we had in it. When construction started however, our loan became an all-inclusive interest-only loan; we nominated close to the maximun allowable amount as the loan amount, and the amount that is actually drawn down is the sum of our existing house/block debt plus progress payments, two so far besides the 5% deposit that we resourced ourselves. When we sold our existing house and settlement was paid, the bank required us to repay an amount back into the loan because we no longer had our existing house as collateral. The result is that we are now drawn down only a small amount at the moment, with plenty leftover from settlement in the bank to look after all the extras and the last payment, but with two other progress payments still to occur. We are still able to reduce the amount drawn down as we go along by making repayments when we can (and will). The interest that we pay once per month is calculated on the amount drawn down and not the total loan amount, so it is rather cheap at the moment! What we used to pay on our old, 'normal' loan easily covers it. When we finally get our keys, the loan will revert to a principle and interest home loan once more. So there you go, one loan will do it, it just gets varied along the way. Geoff - Decophile. Re: deposit on construction loan 9May 28, 2008 3:29 pm Duminda A word of caution on this arrangement ... if your financial situation changes or if interest rates go up between now and settlement, you might not get the amount in your pre-approval. Also pre-approvals generally expire within 3 months of issue; after that you need to re-apply. You should seriously think about applying for the loan now, eventhough you don't need the money just yet. The bank will process the loan, but hold the funds until settlement ... therefore you won't be paying interest until then. Hi just be careful there too. We were approved for our mortgage for land back in July 07. It turns out that the registration of the block was delayed from Oct07 to Apr08. The bank made us re-apply for the loan as they had not drawn down on the loan (we paid the deposit on the land). Therefore we got caught out on a .8% higher interest rate (and we ended up with a different bank...if we stayed with the ones that we were already approved for we would have been paying 1% more) I could just about guarantee that if the rates had of moved downwards they would not have made us reapply at the lower rate...they would have been much happier making us pay the extra $... Re: deposit on construction loan 10May 28, 2008 4:00 pm Thanks guys for all your great advice!! i will def take them into consideration when i go for my loan.
It's just so hard that we have to wait months before the land settles, it would be easier to just buy an established house. But then we would have had to pay alot of stamp duty!! Re: deposit on construction loan 11Jun 03, 2008 2:24 pm Sorry guys to drag this back up.
Just one quick question, with regards to home loans where you have one for the land and one for the building of the house. I'm assuming that when your land settles, that's when you start making mortgage repayments for the land. But with regards to the building loan, when do we have to actually put down the 20% deposit? When the house starts building or before then? Many thanks everyone!! The biggest challenge will be if you take out a loan and then run out of money - you'll have an incomplete security and lenders do not like this so you can get stuck.… 2 18897 In NSW the maximum deposit for building work is 5% until the builder provides HBCF insurance 1 4813 Hi, you've probably already resolved this, however, Commbank will probably pay the funds to you after you send evidence the work is done regardless the change in the quotes. 1 35192 |