Build finance, how is it calculated?

Hi all,

so, we made an offer on 9.5 acres which is subject to finance and I expect that will all be fine. Now call me stupid but I had not looked fully into the way the bank will calculate the next part of the finance which is the finance for the build itself. I have been using a broker and he has explained it a few times and it all sounds ok but I still do not fully understand it.

Am I right in saying that the lender will look at the land and also the plans that are agreed with the council and then work out the assumed final value once the project is complete and then base their decision to lend based on this little lot. Will they also decide on the amount they will loan based again on the final value and assume the LTV based on this also?

In my example, I have paid $350k for the lot. I anticipate around $300k for ground works and build giving a final valuation of around $750k based on previous sales in the area. If this is correct and the LTV was say 90% and I had to find 10%, would my deposit be $25k? This seems way off since I have been asked to find around $61k by the broker.

My calcs are these. $750k final price. LTV would be 90% of that so I would have to put in $75k if I was borrowing the full $750k but since I only need $650k the LTV would be 86.6666%.

I definitely need this explaining in a text I can refer back to many times until I get it if anyone wouldn't mind taking the time to do that.

I live in WA as well if anyone wanted to know for the stamp duty etc. I am being told I need to find $51k to buy the land alone but a lot of that would go towards the build finance as well. I will have to fork out the stamp duty until I get a slab down at which point I would get a lump back for the stamp duty although I would not get all of it back since I have gone over the $300k for land alone exemption. I should add at this point that I am a first time buyer so I will qualify for no stamp duty and also I will be given a grant of $10k, but again, this is once the slab has gone down so that has been calculated into the finance as well....

Is it a wonder that I do not understand this? Ok need to go lie down now...

Hoping you can help.
 
For a construction loan you will end up with two calcs.

First the Land. If you are borrowing 90% it will be a loan of ($350k@90%) $315,000. You will need to fund $35,000 plus costs (stamp duty etc) of approx $18,000 (this is a rough estimate). So total you will need is $53k.

For construction very few banks are using the "on complete" value. They usually take the construction contract value, and lend against that.

So it depends on what you have included in the building contract, as to what you can borrow.
Assuming the contract with your builder is $300k, they will lend you 90% of that ($270k). You will need to fund the $30k upfront. Plus if there are any cost overruns, you will need to fund those as well.

On completion of the building you may be able to have it revalued and finance back up to the 90% of the completed value.

I have no idea where you get $25k from?

Using your numbers below. Land value, plus build cost is $650k. You will need $65,000 deposit, plus purchase costs ($18,000), plus any expenses not included in the construction contract (approvals, designs, ground works, connections?), plus any cost overruns/contract variations.

all depends on the construction contract as to what is/is not included.

Blacky
 
?

In my example, I have paid $350k for the lot. I anticipate around $300k for ground works and build giving a final valuation of around $750k based on previous sales in the area. If this is correct and the LTV was say 90% and I had to find 10%, would my deposit be $25k? This seems way off since I have been asked to find around $61k by the broker.

My calcs are these. $750k final price. LTV would be 90% of that so I would have to put in $75k if I was borrowing the full $750k but since I only need $650k the LTV would be 86.6666%.

most lenders wont lend on the END value, but the cost to complete, assuming the end value is at least the same as cost to complete.

if u were my client id ask you to have 65 k plus stamps available if you wanted to go for a 90 % lend

ifyou had a bit more cash id suggest going to a 12 % deposit, ie 88 % lend + LMI, because that will make a big diff in the lmi premium cost

ta
rolf
 
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