Trying to source bank funding on end value

[Aronius]

Hi there,

I'm hoping someone might have gone down this path before and can point me in the right direction??

I am looking at purchasing a block of land with plans and permits in place to build a single dwelling.

The house, once built, will have a value of $1.1MIL-$1.3MIL which has come from recent actual sales in the same street for similar spec houses.

The land and build contracts come to around $850,000 (I am very good friends with a builder ).

The issue with this is the banks will only value on these contracts rather than the actual end value of the property. So even though the house will be worth say $1.2MIL once complete I can only get funding on a value of $850,000 which causes me to be in LMI territory and a cost of around $30K for LMI!!

I am trying to complete the construction without relying on investors as this will eat away the profits in the deal and to avoid LMI. I can do this if the bank is willing to use the valuations against properties recently sold in the area rather than contract prices but I can't find a lender that will accept this.

Can anybody please shed some light on any possible solutions here?

P.S. I am in a stable job and have adequate insurances in place should anything happen to me. I can also get work easily in the event I lose my job whilst this is all happening.

Thanks

 

[nhg]

Homeside does end valuation I believe.

 

[Aronius]

Homeside does end valuation I believe.

Thanks nhg,

I will double check with my broker on this.

 

[tobe]

for a single resi house most lenders will use end value. However they will never lend more than the construction costs.

Another alternative, if you are such great friends with the builder, is just to have the build contract amended to be more realistic.

 

[Aronius]

for a single resi house most lenders will use end value. However they will never lend more than the construction costs.

Another alternative, if you are such great friends with the builder, is just to have the build contract amended to be more realistic.

Good thinking tobe, that makes perfect sense.

Thanks!

 

[A Jeremy]

I'm with BOQ and they have done value on completion loans for me. I wouldn't have gotten my start without it.

 

[sanj]

for a single resi house most lenders will use end value. However they will never lend more than the construction costs.

Another alternative, if you are such great friends with the builder, is just to have the build contract amended to be more realistic.

What's a bit of fraud amongst friends!

 

[oc1]

What's a bit of fraud amongst friends!

Lmao! I've seen some people do some crazy/creative things with contract prices in my time.

 

[Blacky]

What's a bit of fraud amongst friends!

I was just about to say the same thing.
Bit of money laundering never went astray.

Work for the ALP by any chance?

 

[jezza888]

Homeside, they did end valuations on my triplex! I had done my feso based on paying LMI, when i heard they didnt need to charge LMI because i was at a very attractive LVR.. it was happy days all round!!

 

[tobe]

What's a bit of fraud amongst friends!

Just to be clear I was suggesting the OP change the contract to be closer to market value than he was initially proposing.

In either case its not fraudulent to purchase a goods or service from a friend at a reduced price. A free market is just that, a buyer and seller are 'free' to pick a price.

It would be fraudulent to deal with the ATO or a lender as if it were an arms length transaction. The ATO checks this by cross referrencing things, and checking against industry norms. Lenders use their independant valuer to give them an estimate not only of market value, but normal 'cost to complete'.

 

[Paul@PFI]

I could be wrong but any end value lender will discount the sale for the GST. They wont allow you to fund 1/11th of the sale as its the ATO's money.

New resi premises are subject to GST.

 

[Blacky]

Just to be clear I was suggesting the OP change the contract to be closer to market value than he was initially proposing.

In either case its not fraudulent to purchase a goods or service from a friend at a reduced price. A free market is just that, a buyer and seller are 'free' to pick a price.

It would be fraudulent to deal with the ATO or a lender as if it were an arms length transaction. The ATO checks this by cross referrencing things, and checking against industry norms. Lenders use their independant valuer to give them an estimate not only of market value, but normal 'cost to complete'.

What I understood you to be suggesting was to show the bank a construction contract for a higher amount than he was actually paying.
There is nothing wrong with him getting a discount from a friend, the fraud comes into it when your friend then issues a contract at market rate, even though you didn't pay market rate - and using this false amount to source finance from the bank.

That is called fraud.

Apologies if I miss understood your intent.

 

[Terry_w]

What I understood you to be suggesting was to show the bank a construction contract for a higher amount than he was actually paying.
There is nothing wrong with him getting a discount from a friend, the fraud comes into it when your friend then issues a contract at market rate, even though you didn't pay market rate - and using this false amount to source finance from the bank.

That is called fraud.

Apologies if I miss understood your intent.

I wouldn't call this fraud neccessarily. Rebates in contracts are very common with legitimate commercial reasons for including them. However if it is a ploy to trick a lender into lending you more than they would have otherwise lent you it could be classed as 'obtaining a financial benefit by deception' of similar - look at the Crimes Act in your state for an example. Solicitors in NSW have been warned, in NSW, to steer clear of faciltating this sort of thing. Not sure about conveyancers...

 

[tobe]

I think we all agree. Whether the change to the contract increases or decreases the sticker price v the price paid is irrelevant, the fraud ccurs if this is somehow hidden from a third party such as the lender or the ATO etc.