Hello all, We are considering buying a block of land and building on it once it is titled. At the moment we do not have 20% deposit and the best we can manage is 8%. I am OK with paying LMI and would like to capitalize the LMI which brings the LVR to just under 95%.
Our mortgage broker has told that it is not easy to get a loan with 95% LVR and even if banks agreed they would need buyback and construction clauses in the land contract. Is this the case with all banks? I have got in touch with the developer asking if such a thing exists in their contract. Yet to hear from them.
Should I be looking at a different broker? What are my chances of getting a land loan and a construction loan with LVR 92%? The land titles in 6 months.
Mortgage with 92% LVR
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Hello all, We are considering buying a block of land and building on it once it is titled. At the moment we do not have 20% deposit and the best we can manage is 8%. I am OK with paying LMI and would like to capitalize the LMI which brings the LVR to just under 95%.
Our mortgage broker has told that it is not easy to get a loan with 95% LVR and even if banks agreed they would need buyback and construction clauses in the land contract. Is this the case with all banks? I have got in touch with the developer asking if such a thing exists in their contract. Yet to hear from them.
Should I be looking at a different broker? What are my chances of getting a land loan and a construction loan with LVR 92%? The land titles in 6 months.
Our mortgage broker has told that it is not easy to get a loan with 95% LVR and even if banks agreed they would need buyback and construction clauses in the land contract. Is this the case with all banks? I have got in touch with the developer asking if such a thing exists in their contract. Yet to hear from them.
Should I be looking at a different broker? What are my chances of getting a land loan and a construction loan with LVR 92%? The land titles in 6 months.
I think you actually might have that mistaken - banks tend to avoid buyback clauses.
95% inclusive (so 92% + LMI) is not uncommon nor difficult in metro locations for the right borrowers, perhaps there’s something else tricky about the situation? A tricky location? Block?
I have found that once you are above base 90% LVR, then banks look at applications in a more conservative light. Not only banks, but the LMI provider gets involved as well. Needs to be a strong application, but it is doable.
What you might also want to be wary about is to apply for the land and construction at the same time. Otherwise if you just do the land first and sit on it, you pay all that LMI, and then when construction comes at a later time, the lender looks at it as if the land loan is 95% when it calculates additional LMI.
Cheers,
Tom
What you might also want to be wary about is to apply for the land and construction at the same time. Otherwise if you just do the land first and sit on it, you pay all that LMI, and then when construction comes at a later time, the lender looks at it as if the land loan is 95% when it calculates additional LMI.
Cheers,
Tom
I think you actually might have that mistaken - banks tend to avoid buyback clauses.
95% inclusive (so 92% + LMI) is not uncommon nor difficult in metro locations for the right borrowers, perhaps there’s something else tricky about the situation? A tricky location? Block?
95% inclusive (so 92% + LMI) is not uncommon nor difficult in metro locations for the right borrowers, perhaps there’s something else tricky about the situation? A tricky location? Block?
Hi Bec, the broker has sent me an example which says some like the developer has the right to buyback the property if construction doesn't begin/complete within x months.
I have found that once you are above base 90% LVR, then banks look at applications in a more conservative light. Not only banks, but the LMI provider gets involved as well. Needs to be a strong application, but it is doable.
What you might also want to be wary about is to apply for the land and construction at the same time. Otherwise if you just do the land first and sit on it, you pay all that LMI, and then when construction comes at a later time, the lender looks at it as if the land loan is 95% when it calculates additional LMI.
Cheers,
Tom
What you might also want to be wary about is to apply for the land and construction at the same time. Otherwise if you just do the land first and sit on it, you pay all that LMI, and then when construction comes at a later time, the lender looks at it as if the land loan is 95% when it calculates additional LMI.
Cheers,
Tom
Yes, I understand. Would you suggest I try another broker?
On the second part, would this be an issue if the lender is same for land and build loan?
I have found that once you are above base 90% LVR, then banks look at applications in a more conservative light. Not only banks, but the LMI provider gets involved as well. Needs to be a strong application, but it is doable.
What you might also want to be wary about is to apply for the land and construction at the same time. Otherwise if you just do the land first and sit on it, you pay all that LMI, and then when construction comes at a later time, the lender looks at it as if the land loan is 95% when it calculates additional LMI.
Cheers,
Tom
What you might also want to be wary about is to apply for the land and construction at the same time. Otherwise if you just do the land first and sit on it, you pay all that LMI, and then when construction comes at a later time, the lender looks at it as if the land loan is 95% when it calculates additional LMI.
Cheers,
Tom
Yes, I understand. Would you suggest I try another broker?
On the second part, would this be an issue if the lender is same for land and build loan?
Being a broker myself, I'm not a fan of people shopping brokers around, especially if there has been a lot of work put in. I would suggest you try your broker first, and see if they can come up with a solution for you. If not, or you are unhappy with them, then try someone else.
With construction loans, they and the land loan have to be with the same lender, you can't have it any other way. So what would happen is that they would already take the LMI paid on the land loan and apply it as a credit when it comes time to build, but the initial LMI paid is looked at as part of the total loan by that time.
Eg. Say land loan is $200,000 and build is $200,000. At 92% LVR, that would mean approx. $435,000 valuation.
If loans done together and for arguments sake say LMI was $14,000. Total loan becomes $414,000 which is close to 95%LVR at the $435,000 valuation
If they were done separately over a long period of time and say LMI was split with $7,000 applying at land portion.
After land loan, loan is $207,000 and LMI is close to 95%. When it comes time to build down the track, lender will add the $207,000 to the $200,000 build and use $407,000 as you new base loan. That would mean an LVR of 407,000/435,000 = 93.5%. New LMI will be calculated at that LVR which would mean a higher LMI figure so instead of a further $7,000 of LMI to pay, it all of a sudden becomes an extra $10,000, which would mean that you need to find some extra funds as the total LVR would be in excess of 95%.
The figures above are just arbitrary, but hopefully you get the process that I'm trying to explain.
Cheers,
Tom
Sitting next to a lender
Definitely Buyback clause is not something a bank is keen for, however, definitely bank does want you to build quickly, which may be why you’re looking for it. I think it’s just a misunderstanding.
I’m with Tom, brokers are very well trained - trust your gut, if you really feel misunderstood look around but otherwise it’s likely they know their job.
Definitely Buyback clause is not something a bank is keen for, however, definitely bank does want you to build quickly, which may be why you’re looking for it. I think it’s just a misunderstanding.
I’m with Tom, brokers are very well trained - trust your gut, if you really feel misunderstood look around but otherwise it’s likely they know their job.
Thanks Tom and Bec. That was elaborate.
In my case, the best the broker has offered doesn't work for me. I am not sure if that is the best any broker would offer.
In my case, the best the broker has offered doesn't work for me. I am not sure if that is the best any broker would offer.
I got a pre-approval for my land and construction loan today. We had initially planned to buy a block of land and build on it. Ever since we applied for pre-approval we drove/took the train several times from work to the estate on working days just to get a feel of what we will experience in future. Now we aren't sure if we want to buy this far from work. We haven't dropped the plan altogether, but we are also considering buying a small house in the inner suburbs.
So, does my current pre-approval still stand if we plan to buy a house or do we need to get it separately?
So, does my current pre-approval still stand if we plan to buy a house or do we need to get it separately?
Congratulations ... and commiserations. I'm glad you worked it out before you bought & it's a valuable exercise I encourage.
You should be able to simply convert to any property.
You should be able to simply convert to any property.
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