Land loan then build - deposit requirements

taminbyford · Apr 21, 2021 6:42 pm

Hi there

I have trawled through the forums but don't seem to have found the exact answer I was looking for, so hoping for some help!

We have purchased a block that is about to settle (WA) and I have some questions about the next stage, when we finally decide who we want to build with.

We decided to put a 20% deposit on our land to save on LMI and also to lock in a fixed rate (Westpac). We're not in any rush to build so this seemed like the best scenario for us. I'm now just trying to figure out costs etc for the next stage, whether that's in 3 months or 12 months, and what we'll need deposit wise. I'm aware the bank will value the house and land together, but what I'm unclear of is how much of a deposit we'll need to pay on top of the 20% we've already paid with the land loan and whether the existing equity in the land can be accessed - or if that isn't possible with having a fixed rate loan at 80% LVR.

I know the best option would be to have 20% of the total house and land to avoid LMI altogether, so that's clear. But the rest is incredibly confusing!

Anyone able to shed any light? And yes I could go to my broker but she's away this week

Cheers!

becjarrettdalton · Apr 21, 2021 6:46 pm

taminbyford

Hi there

I have trawled through the forums but don't seem to have found the exact answer I was looking for, so hoping for some help!

We have purchased a block that is about to settle (WA) and I have some questions about the next stage, when we finally decide who we want to build with.

We decided to put a 20% deposit on our land to save on LMI and also to lock in a fixed rate (Westpac). We're not in any rush to build so this seemed like the best scenario for us. I'm now just trying to figure out costs etc for the next stage, whether that's in 3 months or 12 months, and what we'll need deposit wise. I'm aware the bank will value the house and land together, but what I'm unclear of is how much of a deposit we'll need to pay on top of the 20% we've already paid with the land loan and whether the existing equity in the land can be accessed - or if that isn't possible with having a fixed rate loan at 80% LVR.

I know the best option would be to have 20% of the total house and land to avoid LMI altogether, so that's clear. But the rest is incredibly confusing!

Anyone able to shed any light? And yes I could go to my broker but she's away this week

Cheers!

Love that your broker is getting a holiday

Basically you need between 5-20% of the build cost, including any growth you see in the land (yes they will consider the equity here). The more you have, the less (or hopefully no) mortgage insurance you pay.

Also, hold onto your receipts for deposits you pay towards the build, they come off your contribution.

And if you have quotes for finishing items not in the contract (fences, basic landscaping, driveway etc) to go to the valuer this always helps them value up.

Enjoy the process

Leona33 · Apr 22, 2021 7:00 am

We bought the cheapest block of land in the newly released housing estate March 2020. selling price then was same as bank valuation. Block was tricky west to east upslope of 4 meters and 1 meter upslope south to north(back). Due to finding the right design we were delayed. We just signed a fixed cost contract for house construction few weeks ago as we have done soil test and contour survey ourselves before talking to builders. For the land alone, the bank valuation increased by $105000. Our mortgage broker advised us that we don't need to put in additional deposit for the house construction. Thanks to our mortgage broker and for the delays.

plc · Apr 22, 2021 11:03 am

Leona33

We bought the cheapest block of land in the newly released housing estate March 2020. selling price then was same as bank valuation. Block was tricky west to east upslope of 4 meters and 1 meter upslope south to north(back). Due to finding the right design we were delayed. We just signed a fixed cost contract for house construction few weeks ago as we have done soil test and contour survey ourselves before talking to builders. For the land alone, the bank valuation increased by $105000. Our mortgage broker advised us that we don't need to put in additional deposit for the house construction. Thanks to our mortgage broker and for the delays.

You did well there thanks to the rising market. Obviously your land increased by enough that the equity was more than was required for the 20% deposit on construction to forego LMI that would have otherwise been needed.

However others aren't as fortunate. Years ago, plenty were buying land at inflated prices and then the market correction came and when it came time to settle, they found their land had gone down in value and they had to find even more deposit to be able to afford the land and construction.

Just something to think about for any current buyers out there. Always have a plan in place just in case your valuations don't stack up come settlement or construction.

Cheers,

Tom