Help~ Finance for construction loan

[Shirls]

Hi all, first time posting thread here and wondering whether anyone can help me this.

Background:
I am doing my very first project in east Melbourne. The propety was bought at 500K+ (80% loan) and I am looking into a 3 townhouses development. The project has now in council awaiting for town planing permit. And I am expecting construction cost is around 700K.

The bank:
I have been in talking with bank manager several times. And got different answers everytime. First time he said 80% of construction cost, then he changed to 80% of completion value. Then he said I need to sign up the construction contract first then then he can look into the loans... I am so confused.

My questions:
1. How much on earth can I borrow on contruction loan, is it 80% construction cost or completion value?
2. Do I need to sign construction contract first before going to bank for loans? (this is doesn't make sense to me as how can I sign up contract without satisfying myself the finance?)
3. The banker kept asking me will I hold three or do I sell them, would this matter for loans? If I tell him I want to sell, will the bank ask for pre-sale for approval the loan? (I dont want to go pre-sale, as normally the price wont good)

Kindly for your help!!!! Thank you first!!!!

Shirls

 

[Aaron_C]

1) Usually lower of two but completion value is based on all units on one title which is a 15-25% discount to subdivided value.
2) Yes or at least a draft
3) Yes it matters depending on the bank - which one is it?

 

[tobe]

Welcome!

For your own due diligence, I suggest working on 70% of construction costs. most banks will only fund up to 80% of consturction costs or completion value, whicever is the lessor.

If you get 80% itl be a bonus cause you did your figures on 70%.

You need to give the bank the contract for them to do the valuation. Most lenders can do a valuation off an unsigned contract, however they might not formally approval the loan until its fully signed.

In terms of sales, just tell the bank you are planning on renting them out. If his calculator says you cant afford it and need to sell one, he will let you know.

Why dont you get a second opion from either another bank, another employee at that bank, or a broker? Its important to know what you are getting into here. Im sure you had a couple of quotes for the design and for the builder worth doing the same for the finance.

 

[Shirls]

1) Usually lower of two but completion value is based on all units on one title which is a 15-25% discount to subdivided value.
2) Yes or at least a draft
3) Yes it matters depending on the bank - which one is it?

Thank you Aaron. Regarding 1) above, even if I am intending to sub-divide the three, i.e. having separate titles upon completion, the valuation would still be based on all units on one title?

It is Bank of Melbourne

 

[Shirls]

Welcome!

For your own due diligence, I suggest working on 70% of construction costs. most banks will only fund up to 80% of consturction costs or completion value, whicever is the lessor.

If you get 80% itl be a bonus cause you did your figures on 70%.

You need to give the bank the contract for them to do the valuation. Most lenders can do a valuation off an unsigned contract, however they might not formally approval the loan until its fully signed.

In terms of sales, just tell the bank you are planning on renting them out. If his calculator says you cant afford it and need to sell one, he will let you know.

Why dont you get a second opion from either another bank, another employee at that bank, or a broker? Its important to know what you are getting into here. Im sure you had a couple of quotes for the design and for the builder worth doing the same for the finance.

Thanks tobe. That makes much more sense on the contract thing. And good advice on the sale/renting. Thank you.

 

[Aaron_C]

Even if you intend to subdivide, the valuer will work out the value of 3 on one title because if you go bust the bank has to sell 3 at once.

With Bank of Melbourne they could potentially do 3 unit construction but dealing with them would be a nightmare lol.

As for what to tell the bank, if you are building them to keep for investment they should take into account the future rental income once completed.

 

[Shirls]

Thank you Aaron~~