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Can I get construction loan considering future rental income as serviceability?

Discussion in 'Property Finance' started by Ravi, 27th Feb, 2016.

  1. Ravi

    Ravi Active Member

    Joined:
    31st Jul, 2015
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    40
    Location:
    Sydney
    Hi,

    I have PPOR + 4 vacant lands

    I am planning to start construction on all 4 lands. I have enough equity in lands+ cash in my ppor offset to fund 20% for all 4 constructions. So no problem there.

    The problem is - I have hit serviceability limit after funding 2 construction.

    I am told that I can get rental valuation from local real estate agent and show that as future rental income to bank to meet serviceability requirement.

    My question is - Do banks count future rental income towards serviceability and approve construction loans? (Assuming I have enough equity for 20% deposit.)

    Another question is: Since actual income will start only after construction is completed and property is rented out successfully. Do I need 20% + 10-15k (interest paid during construction and till the property is rented out)? Logically it seems so.

    How can I know how much equity I need to fund initial deposit + serviceability during construction?

    Thanks for helping out.
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes some banks do.

    You.will need income enough to be able to pay the interst along the way.
     
  3. tobe

    tobe Well-Known Member

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    I haven't met a lender that won't use likely rental income on a building loan, and am yet to see one require servicing or a buffer for the construction period either.

    However for your own piece of mind id get together (or borrow extra) at least 6 months of payments while the builder finishes up and your first tenants move in.
     
  4. D.T.

    D.T. Adelaide Property Manager Business Member

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    Some banks must. We get asked to do rental appraisals for newly built homes that haven't even begun construction yet.
     
  5. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Yes banks will use projected rental income for servicing. But as Tobe says, you have to make sure you can afford the holding costs and include a buffer in your budget in the event the build drags out for what ever reason.
     
  6. Cactus

    Cactus Well-Known Member

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    Yes they do I am currently doing 2x2unit sites and 2 single lot builds at the moment and both banks NAB and Westpac have gone on rental serviceability. No way I could service $1.7m debt.
     
  7. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Most lenders do. But if the deal is tight and requires lmi and you are "rental reliant" then credit may not like it

    Ta
    Rolf
     
  8. Redom

    Redom Mortgage Broker Business Member

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    Location:
    Sydney (West) and Canberra
    Banks will include the rental income from the dwelling your constructing with them.

    However, if you have multiple constructions in place at the exact same time, quite a few lenders WONT include the rental income from the dwellings in construction with other banks that are yet to be completed.
     
    Jess Peletier likes this.
  9. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Agree with Redom - normally they do but constructing multiple properties at once is outside the norm so might not be accepted.

    Cheers

    Jamie