Browse Forums Home Finance 1 Feb 20, 2015 1:45 pm DH and I are getting close to the time we need to apply for a construction loan. We know that LMI will apply to the loan. We have owned the property since 2008. We refinanced to ANZ late last year for lower interest rates, and when we apply for a construction loan will change products again for an even lower interest rate. There will be a minimum of around 10 weeks from when we get loan approval to site start. We know we will save more money during that time. Depending on some job stuff that is up in the air and the rental we obtain, we will likely save additional amounts during the build. We are planning on paying off small amounts of the flooring, AC etc during the build as well. So the loan amount we get approval for soon will be higher than the actual amount we end up drawing down. Will the LMI be applied at the first drawdown for the first progress payment, or will it be re-calculated after the final drawdown when the bank can see the total amount drawn, as well as that all of the work we said we are doing post handover has been done? I think we will be going down a level (from around 90% to around 87%) for LMI by the time we get to the end of the build. It makes sense to me for LMI to be added at the final drawdown. What happens if our builder hits rock and our loan actually rises if they apply LMI beforehand? Thanks Re: Applying LMI to construction loan 2Feb 20, 2015 1:50 pm Hi Bobbin, The LMI is applied when the loan "settles" which is technically the first draw down - it needs to be insured as soon as the lender is exposed, I see what you're saying but thats how it works. The other point you raise is what if the builder hits rock - your lender will want a fixed price contract before the construction begins and there's no scope for allowing for rock or other cost blowouts. In this case (and although you don't want to borrow more at all) you either have to borrow more up front to allow for it or save for that purpose, or try and get the site costs fixed also. It's very very difficult to increase a loan part way through a build. What a fantastic block you have - enjoy the build process. Rebecca Jarrett-Dalton Property crazy expert mortgage broker, love building new homes! Two Red Shoes mortgage broker http://www.tworedshoes.com.au/building Re: Applying LMI to construction loan 3Mar 01, 2015 7:16 pm The LMI will most likely be charged upfront at the first progress payment stage. Its best to check with your lender directly. Re: Applying LMI to construction loan 4Mar 25, 2015 1:04 pm Hi Bec and jb-money, thanks for your replies. I saw them on my phone at the time and then plain forgot to come back and respond! It makes sense that they would do it that way, for the bank and the insurer, and that is how the decisions are made! Is it possible for the LMI to be recalculated after the first invoice is received (before the first drawdown is made)? There will likely be between 10-20 weeks in between loan approval and the first drawdown and we will have increased our savings during that time. Re: Applying LMI to construction loan 5Mar 25, 2015 1:14 pm What you can do is change your approval for the build loan based on your savings - so do two loans, one for land now and one for build now, then change the build loan in time - they'll charge LMI on the land loan now and the build on your final figures at first draw down. Make sense? Rebecca Jarrett-Dalton Property crazy expert mortgage broker, love building new homes! Two Red Shoes mortgage broker http://www.tworedshoes.com.au/building Re: Applying LMI to construction loan 6Mar 25, 2015 1:29 pm Yes, I think that is what I meant. So we have a loan now which is at about $197,000 and the house and land was valued at $300,000 (land only at $250,000) last September, so we did not pay any LMI on the refinancing. LMI will only apply after the construction loan is added to it. So when we apply for the loan, are you saying to apply for a separate loan so LMI will only be calculated at the first draw down? As we will be switching products within ANZ (to a lower interest rate as the loan will be over $250,000) I had thought that the product wouldn't switch until the first drawdown anyway, so LMI won't apply until then. So you are saying that we can change the amount of the build loan right up until the first drawdown, which in turn would change the amount of LMI that will apply? Re: Applying LMI to construction loan 7Mar 25, 2015 1:33 pm Look, it's not usual and will give you a small headache but yes - it could make sense for you. See a broker, ANZ are doing some good pricing through brokers - you should get a better discount again. Rebecca Jarrett-Dalton Property crazy expert mortgage broker, love building new homes! Two Red Shoes mortgage broker http://www.tworedshoes.com.au/building Re: Applying LMI to construction loan 9Mar 25, 2015 1:45 pm No trouble at all Rebecca Jarrett-Dalton Property crazy expert mortgage broker, love building new homes! Two Red Shoes mortgage broker http://www.tworedshoes.com.au/building 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 18896 brokers will also be in a position to get you a better rate than the advertised rate most times. 6 7557 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 35191 |