Construction Loan

Could someone please tell me how a constuction loan works? More imparticularly do banks value on the end value of the construction and work out the LVR for the purposes of the loan from that point?

I am looking to buy a house with a large block of land and subdivide then build another house. So will a bank look at the total end value of the development including the added equity created by the development therefore bringing the LVR below 80% and providing a loan then?

Thanks for any help.

Andrew
 
Hiya PA

Most lenders look at land value and build cost.

Some will do end value, but these tend to be usually ( but not always) commercial arrangements

ta
rolf
 
Most lenders only consider single construction.

So you may have to work out the end value on the first construction , and then a separate transaction for the subdivision.
 
We're doing this but are funding the subdivision cash - we need to take it to 60% not 80%. I do have two other properties as equity, one of which might even be rented out soon :eek:

Who does end-value? Land+build here is quite a lot (almost $100k) less than a finished, new house would sell for.

Although at the rate land is appreciating here, it won't take long before I get to 60% just by holding the land.
 
Its the same issue almost to the letter.

I've bought a house with a large block of land to subdivide then build another house. So will a bank look at the total end value of the development including the added equity created by the development therefore bringing the LVR below 60% and providing a loan then?

Just had to change the 80 to 60.
 
The posts by Rolf, Simon, & RumpledElf have all been constructive efforts to help. It was kind of them to take the time out to post info for you.

Personally, I found them very helpful.

Cheers,
PJ
 
Well, it would be more helpful to know who does end-value loans :)

Especially for those of us who will have an end-value much, much higher than the sum of the parts. It would make a mammoth difference to the figures.
 
st george does completion value loans , low LVR's and usually comercial rates, must be licenced builder in volved , as i don't think they deal with Owner builders, ???? not sure though.
 
st george does completion value loans , low LVR's and usually comercial rates, must be licenced builder in volved , as i don't think they deal with Owner builders, ???? not sure though.


Craig, any idea of the LVR's on this. 70% end val gets me over the line.
 
I was under the impression, from a building forum, that generally lenders value construction loans based on purchase cost of land plus build contract amount.

The reality for us was very different. Our land and build cost was $540, but the bank valued the land and build at $475 - a big shock. Similar undervaluations occured for friends building on the same estate.

The bank argued that we could have built the same house cheaper, which was a fair comment, but they had no real argument for valuing the land at $170k when we had paid $182 a year earlier and the cheapest block on the market at valuation time (smaller blocks too) was $212k.

The conspiracy theorist in me thinks it's a mortgage insurance premium scam.

To pull out equity we just had a reval, (12 months after the initial construction loan valuation), and they have valued at $590k so I really can't see how they justified their initial val.
 
hi Poor Andrew
the problem for me is this is a board and people seem to think that they should post a question and then what to find the funder.
these are two question they form the same single question but are very different.
the quest who does these types of contruction loan to me is simple private construction funders.
the normal was 70% of land they are down to 60% but a couple are re entering the market at 65 to 70% they are still doing 80% hard and soft costs
and some are dointg grv lending but these are few and far between.
and yes the funders are playing with vals and it does cause a few issues but thats because as they say the man with the money calls the tune.
70 or 80% grv still has to say int he 70/80 unless you have a private t6hat likes the deal and
it has to be high debt coverage
good area
or strong balance sheet.
now the next question is who are they
and I very much daught any comm broker will posts
why because this type of funding is specialist in it has to be done right.
or it will all fall apart
there are a few comm people on here
and if the post find if not I will send a couple the link and they can post if the wish.
as for other asking the question
for me its not this is my question so just answer me
I don't answer one person I post for lots to read if they wish the information thats fine
put I am not one for
this is my post not yours attitude.
post for information and if that helps someone else and for what ever reason not you for me that fine.
I am a team builder
and there is no I in team
and just for a bit of information
the best
most profitable
and the fastest growing companies are all team building companies
why because one player in a team can have a bad day but the team still comes thru.
and believe me if you are going to do construction you have to be a team builder.
just a bit of ideas
 
Top