buying land, house and build a house too

Hi there,

just wondering what the likely outcome might be if I attemted to do what would be most convenient for me. I am about to find out if I will get a mortgage for a block of land at $350k. We will be applying for the build loan in around six months time once I have been with the lender for six months.

My rental contract is up in March and I would like to buy a house to live in while we build. Our current rent is $550 per week and the mortgage on the house we would be looking to buy would be around an expected $1250 per month on interset only ($300k @ 5% over 30 years). If I applied for the loan for the house would I be ruining my chances of obtaining the finance for the build in six months time.

Land $350k Build $280k, combined deposit is going to be $67k at the point of applying for the build at 95%LTV. We will be getting our first home owners grant and stamp duty given back to us at the point of putting the slab down which will be going towards the build loan in there too somehow. My broker understands this better than me..

I would be buying an investment property to live in at around the $300k mark with 5% deposit. I will have about $15k in March but I will have to find the stamp duty too if I understand it right. LMI goes on the loan but stamp duty must be paid up front...?
 
I guess my main point here is that I will be able to afford the investment house easily as I will no longer be living in a $2383 per month rent but will I be risking not being accepted for the loan for the build as I will be in debt for the land and the investment property. I would not want to risk being declined for a loan for the build just because I bought a house to, in the long run save me money...
 
Heya,

I think your asking whether you'll have adequete borrowing capacity to obtain funds?

Its a question definitely worth fleshing out with your broker. You'll need to provide a little more details about your income and expenses for the SS brokers to have something to say about whether you'll be accepted or declined.

Cheers,
Redom
 
Some lenders will not use the current rent as an expense in servicing/borrowing capacity if you can show you will be moving into the new home on completion.
Like PP said, a broker will be your best port of call.
 
Thanks all. My income is around $165k and my expenses are in the region of $4.5 including rent, food, bills. petrol and car regos etc.

Thinking about this loosely we are looking at a total property value of $930k with a deposit of $82k therabouts.

Putting the current deal through has probably worn out my welcome with my current broker, I can see them shaking their head at the thought of this already as this deal has its own complexities already without the thought of the extra house.:D
 
Few points Paterson:

1. LMI can be added to the loan sure - but for 95% lends, it is difficult to capitalise LMI. Only a handful of lenders allow this and there are quite stringent requirements. Bear this in mind when going for finance at high LVRs.

2. Stamp duty is usually paid by you. Some people borrow to pay it, but that may difficult without equity in another property.

3. As beachgurl mentioned, lenders are fine to exclude your rental payments if you plan on moving into your new place.

4. Cant see a problem. From my understanding, you want ~$600k for a PPOR and $300k for an IP. On a 165k income, you're monthly income is around 10k p.a. Expenses 4.5k p.a. Leaving 5.5k p.a in monthly income to service the debt. Add in a 5% rental yield. My quick sense test says your good to go. :)

5. This isn't that complex for a broker - its pretty standard and their job todeal with these type of situations. :)

Cheers,
Redom
 
dont buy the land first, get a full building contract, and get a full loan approval on both before committing to purchase the land.

There is lots of risks with building, but you can manage one of the larger ones by doing the finance as one before you commit to the land.
 
dont buy the land first, get a full building contract, and get a full loan approval on both before committing to purchase the land.

There is lots of risks with building, but you can manage one of the larger ones by doing the finance as one before you commit to the land.

Could you expand on that a bit more? I'm currently looking at a block & to build 2 houses, not sure yet if 1 at a tiem or both together. Interested in the advantages of financing all up front.

Sorry to hijack.
 
Without a contract to build, you dont know what the price to build is going to be. There are many reasons why the builders quote might be more expensive than the price in the fixed price contract. The major obvious one is site costs.

Further, the banks valuer may value the completed project less than the build contract. This is fairly common, especially in new estates, as valuers dont have enough comparable sales. This isnt a problem if you are prepared to tip in more deposit. It can be a disaster if you were banking on the minimum deposit.

Other issues are common to OTP purchases; your details may change prior to getting the build contract precluding you from borrowing, but you are commited to the land. The banks policies may change in between, again leaving you stuck, the property market might change (ie valuations), again leaving you high and dry.

land developers dont like having a long clause to get a build contract ready, builders hate being rushed to provide contracts, but its the best way of avoiding some of these risks. This is very pertitant to FHB with minimal deposit, perhaps it could be argued less relevant for those with more means behind them....
 
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