Buying Land + House Building and Finance

Hi Folks,

Not sure this was discussed earlier in this forum but wanted to check how do banks finance for buying Land + house Building(with a fixed contract) not house and land packages.

My situation

* PPOR property first home
* Currently renting
*Looking to buy land around 450k and 250K for building a 4 bed 2 bath and 2 parking single level house which totals upto 700K
* Have 70K deposit
* Good stable income
* Need 100% LMI capitalized on the loan
* Looking to buy land in the next few months and then build a house immediately

Whats the process the banks follow for buying land and then choose to build a house from a display home?
 
Hi Folks,

Not sure this was discussed earlier in this forum but wanted to check how do banks finance for buying Land + house Building(with a fixed contract) not house and land packages.

My situation

* PPOR property first home
* Currently renting
*Looking to buy land around 450k and 250K for building a 4 bed 2 bath and 2 parking single level house which totals upto 700K
* Have 70K deposit
* Good stable income
* Need 100% LMI capitalized on the loan
* Looking to buy land in the next few months and then build a house immediately

Whats the process the banks follow for buying land and then choose to build a house from a display home?

Standard loan loan.
Than once you get the building contract in it will be a 5-6 payment progress payment loan.

If your going for a high LVR, you will need to make sure they approve or as a min do a "full pre-approval" on your building loan before they approve your land loan. So you want the building contract ready asap as well.

Worst case is you end up with a land and no servicing OR deposit to finalize the building loan, OR the building loans valuation falls short... and since the land doesn't have any rental income it could make you fall into a deeper hole.

Regards
 
Standard loan but to make it easier you do need to have the land+building contract being done together otherwise you have to finance the land stand-alone first, then run the valuation risk for a build later.
 
Hi WritetoAbdul,

When you apply for a loan, the lender will need a copy of the building contract/tender and the plans. They will ask their valuer to estimate the on completion value of the property and will assess your loan on the lesser of the land price plus cost of construction or the on completion value.

Once your loan has been approved, the lender will issue a loan offer for you to sign and return, just like with any other home loan. When your builder is ready to begin receiving payments from the bank he will need to provide additional documents, such as the final council approved plans, his insurance & drawdown schedule.

How do you request that the bank pay your builder directly?

The builder will send you an invoice.
You will then complete and sign a drawdown request form (available from your lender).
Send the drawdown request form and the invoice to the construction department of your lender.
The lender may require a valuation to confirm the work that has been completed so far.
The funds will be advanced to your builder generally within five working days.
Repeat this process for each progress payment required by the builder.
 
Sorry for the late response been busy...

Thanks Mick for the details.

Standard loan loan.
Than once you get the building contract in it will be a 5-6 payment progress payment loan.

If your going for a high LVR, you will need to make sure they approve or as a min do a "full pre-approval" on your building loan before they approve your land loan. So you want the building contract ready asap as well.

Worst case is you end up with a land and no servicing OR deposit to finalize the building loan, OR the building loans valuation falls short... and since the land doesn't have any rental income it could make you fall into a deeper hole.

Regards
 
Sorry for the late response been busy...

Thanks HLE for the details.


Hi WritetoAbdul,

When you apply for a loan, the lender will need a copy of the building contract/tender and the plans. They will ask their valuer to estimate the on completion value of the property and will assess your loan on the lesser of the land price plus cost of construction or the on completion value.

Once your loan has been approved, the lender will issue a loan offer for you to sign and return, just like with any other home loan. When your builder is ready to begin receiving payments from the bank he will need to provide additional documents, such as the final council approved plans, his insurance & drawdown schedule.

How do you request that the bank pay your builder directly?

The builder will send you an invoice.
You will then complete and sign a drawdown request form (available from your lender).
Send the drawdown request form and the invoice to the construction department of your lender.
The lender may require a valuation to confirm the work that has been completed so far.
The funds will be advanced to your builder generally within five working days.
Repeat this process for each progress payment required by the builder.
 
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