Browse Forums Home Finance 1 Oct 11, 2009 12:30 pm Hi All My husband and I have started investigating building our next house. We have an existing home (Mortgage of $230K), house is worth approx $490K. We hadn't really looked at starting to save for a deposit. We have immediate access to $5K. We have this weekend been looking at land and have found a block we like. It ticks all our boxes but we are now a little freaked out by whether we should put in an offer for the block. We know of the builder we want to use and know that there are 4 designs that we like which will fit on the block. This is all moving way too quickly that what I would have liked, however we have a huge title delay in perth. The title on the block we are interested in will be through next week! We would prefer to stay in our house while building the current house. Anyone know whether the equity in our current house will we sufficient to allow for this and also for a "deposit"? We would need to put down $2K for desposit on the block. Would we be able to finance the rest? We are looking at house and land of approx $500K. We would be looking at construction of 12 months at worse and can save like crazy during this time for all the finishes we want. We can also sell some shares at a push - but would rather not do this. We have joint income of around $150K/year and very stable jobs. Thanks Re: HELP! Finance Query re Deposit for Build of 2nd Home & Land 2Oct 11, 2009 1:32 pm Hi jbarry, You are in a very similar position to me, although it looks like you are spending less . Look at my blog for more details. As you currently have $260k equity you should have sufficient money there for a deposit. Assume you are paying about 10% of the house and land in duties and make sure you have another 10% up your sleeves for items you may want to pay for later, the bank may be able to help you out with that. So from here you can assume that you will eventually have about $1,000,000 in equity when you finish. If you want to avoid mortgage insurance you can only borrow a total of $800,000. This gives you an extra $570,000 that you can borrow to cover most of the above expenses. The way the bank looks at it is you are effectively refinancing your current property to supply the deposit for the new property. If you think you can get a good rental return for your current property try to hold onto it. I hope that helps. View our blog at: http://room4acubby.blogspot.com/ Re: HELP! Finance Query re Deposit for Build of 2nd Home & Land 3Oct 11, 2009 1:35 pm Plus ^^^ Interest only on 750k is about 50k pa...@6% @8% is 60k pa. That is a lot of cabbage But there are more qualified ppl here to discuss to pro's and con's. A friend of mine is happy to be in debt for 4m and is retired... using a line of credit and reducing his equity to cover the costs... Intending that growth will service his debt. Is this what you were hoping for? (not the 4m debt) Where you are coming from is where you are going to... Re: HELP! Finance Query re Deposit for Build of 2nd Home & Land 4Oct 11, 2009 2:46 pm I forgot to mention that we would sell our existing home at completion of the new one. We don't want to keep it as an investment due to some public housing properties near by. We will be looking at an investment property once we are settled in the new house. What we need to know at the moment is really whether or not to buy the block. Obviously finance will be a huge consideration though. Thanks for your help. jbarry My build thread: https://forum.homeone.com.au/viewtopic.php?f=31&t=25713 13th Oct - Offer on block 4th Dec - Settlement of block scheduled (delayed due to titles) 22nd Feb - Titles Issued 17th Mar - Land Settlement 17th Mar - Pre-start meeting Re: HELP! Finance Query re Deposit for Build of 2nd Home & Land 5Oct 11, 2009 3:46 pm jb, If the block is part of a new estate, consider putting a fully refundable holding deposit on the land (it was $500 in our development). This usally lasts about a week. Use this time to seek professional advice on your finances (eg. broker), who is in a much better position to answer all your specific questions. We squeezed 10 days out of our holding deposit under the provision of having the land contract looked at. If at the end you arent ready, or want to wait, you get your $$$ back and are no worse off. Re: HELP! Finance Query re Deposit for Build of 2nd Home & Land 6Oct 11, 2009 4:38 pm Hi there, We had similar equity in our home but decided to sell our home and rent so we could buy our land in cash. WE have no debt at all and are just paying rent which is a cheaper home so not too bad. I was too scared to think about a high debt (bridging finance), mainly because of the worry of higher interest rates. Harribeka Re: HELP! Finance Query re Deposit for Build of 2nd Home & Land 7Oct 11, 2009 5:59 pm Yep... High Interest is to put the brakes on the ecconomy... If inflation is growing too fast, then so are the values of your homes Our population grew by 3% last 12 months that is an organic growth of 600000 ppl. We are already short of houses( depending on where you live ) The highest number of imigrants are from more expensive places to live... apparently We could be in for hyper inflation/interest and go back to 18% how would that make you feel... Just remember we survived that too... At one stage we(I) were/was paying 18.97% albeit for a short time. A coupla bobs worth to think about Where you are coming from is where you are going to... Re: HELP! Finance Query re Deposit for Build of 2nd Home & Land 8Oct 11, 2009 6:14 pm We did this and we bought our block in november last year and stayed in our existing house until the new one was finished (August this year). We managed to time the handover on the new house and settlement on the old house within a week of one another, giving us a bit of time to move in, so it worked out really well. Yes, it is definitely a lot more convenient than selling, renting and moving twice. However, the only thing I would be wary about now is the possibility of interest rates going back up. Another option would be getting a loan to buy your block now, then sell your existing house and move to a rental whilst you build. One of the advantages of this is being able to take your time to sell your current house and hopefully achieving a good price. We feel that we could have achieved a slightly higher price than we did, but we were under a bit of pressure to sell at the time as completion of the new house was looming. Blog: http://bluemistkids.blogspot.com "Never be afraid to try something new. Remember, amateurs built the ark, and professionals built the Titanic." Re: HELP! Finance Query re Deposit for Build of 2nd Home & Land 9Oct 12, 2009 5:16 am Hi jbarry, You would seem to service a large loan on your income however you need to give a lot more information and something not to do on a forum like this. One thing you should think about however is not to cross collaterise the 2 properties. That is to get one large loan with your existing property and your new property joined as far as the lender is concerned. It will cost you a fair amount more when you go to sell your existing property. A bridging loan is a possibility but I'm not a fan as you are normally stuck with the one plan. Something you may want to look at is to get a LOC on your current property for 20% of the purchase price plus costs and start a new loan seperate from your current mortgage. This will give you more choices after you have finished building your new home, eg if you can't sell your house for a reasonable price you can always hold it for another 6 months. I would also change your current mortgage to I/O to free up some more cash for you. A broker should be able to set up your loan so you can have this flexibility. PS Where are you looking to build in Perth? Just built in Canning Vale and looking around for land again. Re: HELP! Finance Query re Deposit for Build of 2nd Home & Land 10Oct 13, 2009 5:37 pm Hello Everyone, I am a broker based in Brisbane. Thought I would jump in here. From what I can see in the info you may be able to lend comfortably up to about 80% of your current property without needing any mortgage insurance as long as you can provide financials for your income. (This 80% would be dependant on your lender and postcode. Some areas particularly in Western Australia are being looked at closely by the banks at the moment) This would allow anywhere up to $162,000.00 equity to be released from your current property. I do not have a break down of the land purchase price and the construction cost seperate so I will have to generalise here. Generally speaking land deposits can be retrieved on a contract as long as the contract falls through for a 'conditioned' reason. This being finance, building and pest, or soil tests etc. So under most circumstances you would only lose this deposit if you just decided not to go through with the sale during cooling off. Onc_artisan is correct regarding the repayments etc. they will be in the vicinity he has stated. However, you would not necessarily be covering these costs the ENTIRE time of construction. Construction lending is disbursed in stages. You only make repayments on the amount that has been disbursed at each stage. First disbursement being land, then the slab going down and so on. So for instance if the land is $180,000.00 then your repayments would be on the $180,000.00 plus the lending on your already existing property. That is until the next stage is completed, at which point you would be making payments on the land $180k + next stage $60k for instance = $240k plus your current lending. These staged repayments can be estimated once you have a building contract in place and this approach would be dependant on your affordability. As touched on in previous posts. Bridging finance is an option. Yes the interest rate is usualy higher on these lending products. However, the interest is usually capitalised to the top of the loan and not required to be paid during the bridging period. This may be suited to your needs if your affordability (as mentioned above) does not suit the staged repayments. A line of credit would be difficult to arrange for the 'Entire' amount as you do not have equity available to sufficiently cover the entire build. As an example. If you had a property valued at $650k with no loan against it. You could obtain a $500,000.00 Line of Credit and disbursed funds for the land and construction yourself. In your situation you have $162,000.00 equity available at current. Which you can leverage to cover deposits and costs etc. in order to only have to lend up to 80% of the construction. Keeping it out of mortgage insurance territory. ___________________________________________________________ Arrange for a broker to obtain preapproval for the land and construction either together or seperately. With the deposit being noted as coming from equity in an existing property (so there are no surprises. They know everything up front) - If you have the time to obtain preapprovals this is. The increase in lending with your current lender should be conducted at the same time for enough funds to cover 20-30% of the land and construc. If you do not have time and dont want to lose the land it may pay to obtain a land contract subject to finance with a long finance period. Such as 3 or 4 weeks and also subject to soil testing. (this way either your broker or your builder can terminate the contract for you should there be any issues) Arrange for your builders to put together a building contract (soil testing will need to be done for this- also note that the builders will most likely charge a deposit amount to cover the testing and engineering so you will need to have the increase in your current lending being put together to cover these up front) ______________________________________________________________________________ I realise this has been a large post for all to read. My apologies. Lending just isnt simple anymore Hope the information helps. Regards, Trent Re: HELP! Finance Query re Deposit for Build of 2nd Home & Land 11Oct 13, 2009 5:42 pm Congratulation Trent for giving such great advice and NOT promoting yourself here…..yet. Keep up the good work, and welcome to the forum. Internal and External Building and Colour Consultant Online - Worldwide http://www.denovoconcepts.com Re: HELP! Finance Query re Deposit for Build of 2nd Home & Land 12Oct 13, 2009 5:43 pm Well done Where you are coming from is where you are going to... Re: HELP! Finance Query re Deposit for Build of 2nd Home & Land 13Oct 15, 2009 5:21 pm Thank you all so so much for your comments and advice. It is very much appreciated. The good news is that we made an offer on a block of land in Wattle Grove (Perth) on Tuesday, at the minimum asking price and the offer has been accpeted. We were referred to a FANTASTIC mortgage broker (through a real estate agent friend of ours) and spent 3 hours with him this morning going through absolutely everything. He was very thorough and very knowledgable - unlike another Mortgage Broker we have used previously - who up until now we thought was good. He has given us some really great advice and we are proceeding with the application to re-finance our current mortgage, the purchase of the land and pre-approval for construction (through CBA). It's a little hard for me to explain how it will all work, but we are able to comfortably stay in our existing home during construction paying interest only for everything - and hopefully capitlising on increased property value on both properties in the coming 12 months. Regards JBarry jbarry My build thread: https://forum.homeone.com.au/viewtopic.php?f=31&t=25713 13th Oct - Offer on block 4th Dec - Settlement of block scheduled (delayed due to titles) 22nd Feb - Titles Issued 17th Mar - Land Settlement 17th Mar - Pre-start meeting Re: HELP! Finance Query re Deposit for Build of 2nd Home & Land 14Oct 15, 2009 5:31 pm Good to hear this has a positive outcome Blog: http://bluemistkids.blogspot.com "Never be afraid to try something new. Remember, amateurs built the ark, and professionals built the Titanic." Re: HELP! Finance Query re Deposit for Build of 2nd Home & Land 16Oct 16, 2009 7:13 pm Hi glenglen No - we were with Adelaide/Bendigo bank. I wonder why you ask? jbarry jbarry My build thread: https://forum.homeone.com.au/viewtopic.php?f=31&t=25713 13th Oct - Offer on block 4th Dec - Settlement of block scheduled (delayed due to titles) 22nd Feb - Titles Issued 17th Mar - Land Settlement 17th Mar - Pre-start meeting Re: HELP! Finance Query re Deposit for Build of 2nd Home & Land 17Oct 17, 2009 12:36 am Hi Jbarry, No real reason, CBA has a very competitive product and they are easier to get a loan through, thats all. Just a little wary since CBA now requires brokers to put a certain amount of buisness through them or they have to pay the bank to be re-accreditited. Can I ask however if you have 2 loans with CBA? That is one for each security? Reason I am asking, if they are joined, when you go to sell your original house, you will have to get a complete new loan, that is new application fee, new valuation, etc etc. If the bank wnats to be picky, they could even charge you a early repayment fee if it is in the first 4 years. Hopefully you have it set up correctly now so your original property is on its own loan and once sold, the new property just continues. Re: HELP! Finance Query re Deposit for Build of 2nd Home & Land 18Oct 19, 2009 1:01 pm GlenGlen. Cba does have break costs and compared to other lenders $700 for the DEF isnt that large of a cost. The broker in this case is probably looking at the exposure level required. If it is anywhere near mortgage insurance area then CBA can be the better way to go in some circumstances. I am not defending CBA here. I am broker and do not favour any one lender unless the circumstances of a client matches that particular funder. Some benefits that can be found from a lender such as cba are less restrictions on postcode compared to Loan to Valuation ratio also in house Mortgage Insurance approval when the loan scenario is within certain criteria. Meaning that once it is approved. Generally it is approved and does not need to be sent off for mortgage insurance approval after the fact. It sounds like the Broker in this circumstance has spent a solid amount of time getting to know his/her clients and understanding their particular situation. Yes it is a situation whereby re-accreditation does cost a fee about $500.00 from memory if you drop off with this lender. However, it comes back to finding a good broker. That will place your lending based on the merits of the deal not their own agenda. The company I work for is classified in the higher ranks with CBA. Not because we choose on our own agenda to place lending with them. But in certain situations they are the best fit for a particular situation. Regards, you were just referred to get advice from your solicitor. This is a legal matter. Separately, why would you use a buyers agent for a house and land package? 3 57577 2 7202 There is no reason why building contract reconciliation cannot be done prior to handover, if the builder won't do it get someone to do it for you. Why would you pay for… 3 6689 |