substitute security to an unfinished house

Discussion in 'Property Finance' started by Micko, 10th Apr, 2011.

  1. Micko

    Micko Member

    Joined:
    10th Apr, 2011
    Messages:
    4
    Location:
    Gold Coast
    Hi there, Just wanted to know if there is any finance experts or people that have done this before?

    Here's the story.
    I have my eye on a great property, a large home which is at lock up stage and when finished would sell for at least 700k. It is unfinished with pretty much nothing inside just the framed up walls. But there is power and water temporarily hooked up, an old toilet and it is fully sealed. I think the builder died.

    What I want to do is buy the house move in and finish it off. I'm an electrician, my brothers are plasterers and my dad is a registered builder so I can finish it for around 50k or material cost.

    My problem is my finance company might not accept this house as security as the valuer may say it's 'uninhabitable' even though it would be fine for me.

    I want to transfer the mortgage from my current house to the new one without having to reapply for another loan etc. but they will only do that on a finished house. I'm with Myrate.
    My finances should work out like this-
    sell current house for (worse case scenario price)-$450,000
    purchase unfinished house for-$375,000
    spend 50k to finish plus I'll have the 25k for fees etc and I have 20k in the bank as a buffer. It doesn't matter how long it takes to finish as I won't be selling.

    Can I-
    A.Try to get the transfer security contract done and just see what happpens with the valuer?
    B. Bang in an old kitchen and bathroom temporarily to try and make it 'habitable' for the valuer before he has a look.?
    C. Get my dad who is a licenced builder to write a contract saying he will finish the property for 50K and then present this to the finance company from the vendor.?
    D. forget it too much drama.?

    Not really sure what to do.
    Sorry for the long post but I hope you can help me with this dilema as I really want the house.
    Thanks
     
  2. Mick C

    Mick C Mortgage Broker

    Joined:
    26th Jan, 2011
    Messages:
    2,048
    Location:
    Sydney, NSW
    Hi Micko- your in a tricky situation...i would first advise you not to be too choosy on who the lender is....because finding a lender who would
    1. Allow construction finance on a unfinished home
    2. Owners builders
    is hard enough ...

    Just be aware even if you add a toilet etc...it will still be noted as un-livable as it doesn't have the council approval yet ( cert of occupancy). The way the bank thinks is...if you lose your job and you can not meet your repayment what will the bank have in "value" to sell? at the current state Nothing...they can not sell brick and cement.

    Look at what happened to this builder..half finished home???

    You have 2 options.
    1. Owners builders - 80% LVR for land...and 65% LVR for the construction cost- and it must be a very detailed construction plan for them to consider owners builders- EVERYTHING must be included plus an 10% short fall.

    2. Registered builder- fixed price - 90% LVR for both land and constructions and it's not based on "future value".

    What you need to apply for is a constructions loan....not a standard loan- so in effect valuation for the land will be done only...the construction part will depend on which of the above you choose.



    Regards
    Michael
     
  3. tobe

    tobe Mortgage Broker

    Joined:
    10th Mar, 2007
    Messages:
    2,938
    Location:
    Melbourne Victoria
    Now you understand why there is such a substantial discount on the selling price.....

    Finance for an uncompleted house, that is one without a certificate of occupancy, is dificult if not impossible.

    One option may be to ask the seller for vendor finance, or a long settlement, increase your loan on your current property for the costs of improvements, and then quickly finish the property and get your COO.

    The problem witht his scenario is the vendor is open to substantial risk if you do not complete the house, or if something happens structurally to the property during settlement.