Financing OTP settlement

From: Lotana Von Amor


Would anyone with OTP purchase experience help me with the right approach to financing OTP settlement. A year ago I bought a deposit bond and in 3 months time would need to settle. According to the contract, the developer will give me a very short (1 week) notice to settle and will charge severe penalties if I delay. To avoid the penalties, I'd like to prepare a loan facility that I can draw at settlement. My question is: would the lender set up a facility for me secured by this property before settlement? What is the right way of setting it up?

Say cheese,

Lotana
 
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Reply: 1
From: Richard Hunt


Hi Lotana,

Your obligations to settle on the completion date or within a certain timeframe following notice by the vendor are consistent with a standard CofS (whether OTP or otherwise).

In the absence of any previously approved finance you need to make this a priority sooner rather than later to ensure a loan facility is set-up well before the expected completion date.

The lender's loan offer/acceptance process to set-up any proposed loan facility will ensure that the necessary mortgage documentation is established prior to settlement. At settlement your lender will advance the funds agreed, and with the passing of title to you, will begin to enjoy the rights provided by the mortgage.

It's difficult to provide any definitive view on the best loan set-up for you. Your personal circumstances and use of the property will dictate what this should be.

Hope this helps.

Cheers
Richard
 
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Reply: 1.1
From: Rolf Latham


Hi Richard

The answer to the right way to set it up is to talk with a good independent mortgage broker. I dont have a trade mark on that line :eek:)

Ta

Rolf
 
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Reply: 1.2
From: Lotana Von Amor


Thanks Richard,

The remaining question is how far the banks will go in approving my application before I receive the notice. Previously I bought existing (not OTP) properties and applied for a long after the exchange. it took them 4 - 6 weeks to get things ready for settlement. Is it the same for OTP? Having a contract at hand, can I just apply for a loan expecting them to value an incomplete property and get loan approval prior to getting vendor's notice? Sorry if I upset you by repeating the question, but I do appreciate your explanation.

Say cheese,

Lotana
 
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Reply: 1.2.1
From: Peter Henery


Lotana,
Because you used a deposit bond, when it finally comes time to settle, the amount/percentage you will have to contribute depends on your financial arrangement with your lender/bank. A "normal" finance arrangement would be you to provide 10-20% of the purchase price (plus purchase costs (legals etc) and your source of finance (bank) the balance 80-90%. Your 20% would normally be in cash or in equity from other properties. The bank will need to value the property when it is completed just as with a normal purchase. If you have purchased at (or below) current "market value" this should not be a problem. You need to be making applications to lenders now. Do not wait. Get it all ready. And a final "word" on buying OTP ; make double sure you get what you paid for! This means everything from measuring the size of the property to "counting the cutlery" if your purchase includes furniture/fittings.Once you get notice you need to be ready to check
all the details. In my experience they deliberately give you very little time.
And have a good friendly solicitor on your side !

Just a few thoughts.Hope they help.
Peter H.
 
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Reply: 2
From: KJL .


Lotana

Not quite on point, but I settled on an OTP in Sydney about 3 months ago, and just thought I'd share some thoughts. My main piece of somewhat cynical advice is - trust no-one!

Don't adopt an ostrich approach and assume everything will be fine - if you're local get involved in the process as much as you can and carefully manage settlement from start to finish, and then beyond.

For example, we had an agent conduct the pre-settlement inspection and all seemed fine - the electricity wasn't on during the inspection (the developer said it was to finalise the lifts) and we then discovered there were no meter bexes and no-one could move in until a fortnight after settlement!

Nobody cares about the place as much as you. Despite others sounding as sympathetic as possible to the problems that may crop up, you're the one paying $X hundred per week mortgage until there's a tenant happily in and paying rent.

Also, hound the management agent, do all you can to get the place ready for a tenant as soon as possible (to steal a march on other owners if you can). Visit the place and ask yourself what *you'd* like if you were a tenant. For example, do you need to fit blinds to make it looks more homely and liveable - the tax deductible cots of this may equate to only one week's rent - critically look at the new building - is the entrance and carpets clean, or do they have contractors dusty footprints everywhere? If so contact management to get it cleaned! Tenants generally want to live in new buildings, but are put off by dirty ones.

Just some tips from recent experience. Hope they help.

KJL
 
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Reply: 1.2.1.1
From: Richard Hunt


Lotana,

All lenders will have different valuation policies. As a rule of thumb, at 3 mths from completion you have a good choice of lenders that will provide unconditional loan approval.

In many instances lenders will accept the CofS as proof of value and won't bother with a formal valuation in any case. If they do choose to do a valuation prior to completion, they will use various techniques that will give them a good basis for estimating the value of the completed unit.

Hope this helps.

Regards
Richard
 
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Reply: 2.1
From: Richard Hunt


Hi Rolf,

Your right of course, but it's still plagiarism. Maybe I'll sidestep the issue and just paraphrase in the future :eek:)


Cheers
Richard
 
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