Browse Forums Home Finance 1 Sep 14, 2016 6:54 pm I hope this all make sense. We are FHB. So thinking about buying land outright and that will take up about 85% of our savings. We figure this way we don't have to worry about making loan repayments on the land and will only make repayments on the construction loan. Is it possible to use our land as a "deposit" on the construction loan, instead of paying 20% deposit with our savings? We've been speaking with 3 banks (non-banks) and none have given us a clear indication if that is possible. Our settlement on land is less than 3 weeks from now and we're starting to get anxious. Re: Using Land as a 'deposit' on building loan? 2Sep 14, 2016 8:46 pm Hi Firstbuild90 A residential construction loan's loan to value ratio (LVR) is calculated using the equation: total loan amount / land value + fixed price building contract. To illustrate this, take the following scenario: Land cost: $300,000 Fixed price building contract: $400,000 Loan to buy land: $250,000 Loan for construction: $400,000 Your initial LVR would be: $250,000 + $400,000 / $300,000 + $400,000 = 92.85%LVR Your final LVR (which includes LMI) would be: ~95%+ LVR (dependent on the cost of the LMI policy) Most lenders offer their best construction rates at a maximum of 80-90% LVR. You can go higher than that but the rate will typically increase and so too will the cost of the LMI premium which will become increasingly cost prohibitive. If you are keen to maximise your LVR to keep all cash out of project, you will find that some lenders will do final LVRs of ~99%. If you wanted some assistance with structuring the deal please feel free to make an enquiry using the form located here. Hope this helps. Naritas Finance w: https://www.naritas.com.au l: https://www.facebook.com/naritasfinance t: https://www.twitter.com/naritas Re: Using Land as a 'deposit' on building loan? 3Sep 14, 2016 9:12 pm Hi Firstbuild - most definitely the value of the land will be taken as deposit, can't tell you the numbers without knowing the land price and build price but definitely the value of the land will be included in the over all value to work out what contribution you have to make - if at all. Good luck building Bec Rebecca Jarrett-Dalton Property crazy expert mortgage broker, love building new homes! Two Red Shoes mortgage broker http://www.tworedshoes.com.au/building Re: Using Land as a 'deposit' on building loan? 4Sep 15, 2016 9:37 pm firstbuild90 I hope this all make sense. We are FHB. So thinking about buying land outright and that will take up about 85% of our savings. We figure this way we don't have to worry about making loan repayments on the land and will only make repayments on the construction loan. Is it possible to use our land as a "deposit" on the construction loan, instead of paying 20% deposit with our savings? We've been speaking with 3 banks (non-banks) and none have given us a clear indication if that is possible. Our settlement on land is less than 3 weeks from now and we're starting to get anxious. Hi firstbuild, there is definitely no reason why you can't purchase the land outright and only have a construction loan if servicing permits. However be aware that builders usually like some money upfront to start proceedings, and there should always be some money set aside for cost overuns and miscellaneous outside the building contract. So it would be wise to take that into account. Cheers Tom Re: Using Land as a 'deposit' on building loan? 5Feb 13, 2017 2:15 pm firstbuild90 I hope this all make sense. We are FHB. So thinking about buying land outright and that will take up about 85% of our savings. We figure this way we don't have to worry about making loan repayments on the land and will only make repayments on the construction loan. Is it possible to use our land as a "deposit" on the construction loan, instead of paying 20% deposit with our savings? We've been speaking with 3 banks (non-banks) and none have given us a clear indication if that is possible. Our settlement on land is less than 3 weeks from now and we're starting to get anxious. I am a first home buyer and purchased my block of land outright. I went through Yellow Brick Road and they hooked me up with a great loan from Commonwealth Bank. I have a loan for the entire cost of the build. I also explained this to the builder as I did not have the deposit straight away and they were very understanding and waited for the bank to pay the deposit. Any questions, just ask! Building with Long Island Homes 23sq custom build 2017 Re: Using Land as a 'deposit' on building loan? 6Feb 13, 2017 4:25 pm Hi Firstbuild, Just from my experience... you can use the land (just the $ you contributed) as the deposit... There is a waiting period... in my case, the land value was X... loan was Y and my out of pocket was Z (X=Y+Z)... I had to wait for 3 months for $Z to be consider as deposit towards construction loan..... The catch is, if your construction cost is A and your borrowing power is B (Where A is greater than B) then you need to show the shortfall A-B in cash and it can't be asset but if your borrowing power is more than the construction cost, there shouldn't be any issues... Hope this helps! 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