Browse Forums Home Finance Re: Using equity to purchase land 2Jun 19, 2016 7:45 pm 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 equity to purchase land 5Jun 21, 2016 12:02 am mum2cj Hi. Just after a little guidance please. We are looking to purchase a block of land to build after we sell our current home. We have found the block that we want to purchase earlier than what we thought we would. Our house is not yet on the market. We are wondering if it is best to use the equity in our current home which is roughly $280000 or do we get a seperate loan for the land only ($155000). I understand to get further finance that it will come down to our servability of the loan. Thanks any advice will be helpful. Hi there, As Bec mentioned, you could do either option. However with most cases that come across my desk like this, I recommend to do a bit of both, use the existing equity for 20% deposit and closing costs (stamps, etc) on the land (so in your case $31K + costs), and the rest on the land itself ($124K). This avoids the need for LMI, and allows you to have more cashflow when you sell and its time to build in case of vals not stacking up, overuns, etc. Obviously your case may be different, so it makes sense to see a decent broker who can advise accordingly. Cheers Tom Re: Using equity to purchase land 6Jul 06, 2016 3:40 pm NEVER EVER use dual securities for a loan. Final. When you use two securities, when your house finally does sell for whatever amount, banks will RE ASSESS the loan with the VALUATION OF THE DAY on the remaining security. Then they will determine what is an acceptable loan going forward. So if your income has changed, circumstances have changed, valuation of remaining security has changed, LENDING CRITERIA OF BANK AND ASSESSMENT POLICY has changed you could easily end up with less money from your sale (but lower mortgage on remaining property) OR WORST CASE, no longer suitable as a borrower from that bank. In a boom, usually its fine, but going thru the sideways or volatile market, you are screwed, big time. Ive seen people UNABLE to settle on a sale because they can't carry the remaining securities on their own. Borrow into equity as deposit on existing property (20% deposit + duties &cost) as CASH, SEPERATE 80% loan on land. Same bank fine, different, not worries. This way when home sells, you know EXACTLY how much $$$ you are paying out and will have, and no sweating on valuation of land and if you qualify for a loan. Everything is already in place. Bankers NEVER EVER advise this because they love to stitch up clients to their bank and have the lowest risk possible per lend. Brokers who are owned by major banks (yes the 2 biggest brokering firms) stitch people up, and other independent brokers, well luck of the draw there. Like a good mechanic, if you (ever) find one, treat them like gold and never change! Re: Using equity to purchase land 7Jul 06, 2016 9:25 pm Same goes for these 'guarantor' loans. NEVER EVER tie up my property for the kids. What happens if they divorce? (50% chance in oz, and I have 4 kids!), what happens if THEY default on the loan? My problem? Not likely. They need $$$, I borrow in MY NAME on loan separately and give to them as 'cash'. THEY make the repayments, otherwise they are OUT OF MY WILL. Real example, they needed 100k, I got 250k out, 100K for him and he makes repayments (on the 100k borrowed), I 'give' 150k to my finance broker and so far average around 12% pa returns. Which covers the 4.5% mortgage for the 250k at the moment. Anyway, so far has repaid 12k of the 100k lent. So far so good. I strongly encourage him to refinance once construction is complete to repay me in full. At that point I'll close and end out the whole 250k loan. BUT KEEP AVAILABLE BALANCE AS REDRAW (this is called a $10 mortgage, not quite paid in full) so when No.3 comes with her hat out, no need to reapply. Simple, clean and relatively risk free. At least limits MY exposure to their life dramas / default situations. The tax benefits here are obvious, as long as I continue to get a return that covers the whole loan amount. Good in a low interest rate environment. 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 19068 Broker here - legislation says that every true broker must put the clients best interests before theirs so in theory they must offer you the best options for you on their… 2 46003 0 2004 |