Construction loan CBA

Discussion in 'Loans & Mortgage Brokers' started by Daz7, 17th Feb, 2020.

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  1. Daz7

    Daz7 Member

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    Have built a few houses in the past with no funding dramas however have been confronted with a interesting dilemma with CBA on the latest one.

    We have pre-approval from CBA for x amount for construction on land we own outright, we're borrowing about 40% of the total package. However, CBA are asking for council approved plans. Our project home builder is also being pushy for us to sign contracts before we go to council. I'm resisting signing those, although we have paid a deposit to get everything done up to that.

    So we have a chicken and egg stalemate. The CBA guy tells me 'everyone signs a contract before funding approval' My argument is I wouldn't commit to anything in business, prior to funding approval why would I do it personally.

    So, am I a conservative dinosaur in todays marketplace?
     
  2. Peter_Tersteeg

    Peter_Tersteeg Well-Known Member Business Member

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    No lender is going to give you a full approval without council approved plans. They want to know what their money is being used for.

    The process is normally that you'd sign the contract, pay the deposit then the builder uses that 5% to get the plans and insurance. I understand the delema, but I can't recall ever having a problem with it.
     
  3. Daz7

    Daz7 Member

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    We've paid the deposit, have plans just not council approved at this point. I've always had pre-approval based on those plans with everything able to go forward from there. Seems a bit different this time.
     
  4. Morgs

    Morgs Well-Known Member Business Member

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    CBA are in the same position in a way where they can't commit to funding without knowing what it is for. Most other lenders will have the same view.

    Given you already have pre-approval for the amount you're looking for and LVR is low (and CBA fully credit assess their pre-approvals), then unless there is a substantial change in the amount you need then you should be fine.
     
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  5. Watson1

    Watson1 Well-Known Member

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    They should only require the council approved plans at funding stage which is when you request CBA to make a progress payment request.

    It should be set up as a settlement condition as opposed to a loan approval condition. Generally they approve your loan and issue loan contracts, however, will require the insurances, permit, stamped plans at payment stage.
     
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  6. Daz7

    Daz7 Member

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    I agree, this has been my experience in the past. Although going by the other relies above it appears things might have changed.
     
  7. Marty McDonald

    Marty McDonald Mortgage broker Business Member

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    There is always a lot of chicken and egg with construction loans and builders. Each wants the client to commit before the other has singed off.

    As long as you have the $ amount pre approved and you are building a standard style property there isn't any particular risk IMO. Perhaps you could offer to pay a part deposit to cover their costs which then comes off the contract deposit.
     
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  8. sumterrence

    sumterrence Well-Known Member

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    I think in your case you should be able to get formal approval without council approved plans given you don't own any money on the land. Unless your build cost is fairly large, otherwise there can be a case where you use your land as collateral and borrow upto 80% of the land value. This way the bank is less exposed.
     
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  9. Brady

    Brady Well-Known Member

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    Sign contract w/ builder subject to finance (non-refundable deposit paid)
    Builder provides bank pack (contract, progress payment schedule, plans, elevations, specs), submitted to bank forwarded to valuer, valuation completed
    Bank should be able to get documents prepared, signed, approval for finance
    No commencement letter issued until full council approval and builders insurance
     
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  10. Marty McDonald

    Marty McDonald Mortgage broker Business Member

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    Personally never seen a build contract with a subject to finance clause but everything is negotiable I suppose.
     
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  11. Brady

    Brady Well-Known Member

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    Really? Very common, even section in the HIA for it...

    upload_2020-2-19_9-3-50.png
     
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  12. tobe

    tobe Well-Known Member

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    You need a signed build contract (not just plans) for the valuation. You need the valuation for formal approval and docs issue. To settle, or draw the construction loan, you need stamped plans from the council otherwise the builder won’t start (or shouldn’t start).
    the lender will also want builders insurance before site start/ loan drawdown.

    Most builders won’t let you sign their contract without payment of the 5% deposit.
     
  13. Marty McDonald

    Marty McDonald Mortgage broker Business Member

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    Fair cop. Not seen one in NSW contracts
     
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  14. sash

    sash Well-Known Member

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    Word of advise be careful with CBA....

    Construction loans approvals are granted and then you settle on the land. If they are done as a Hosue and Land package.

    The approval to proceed with construction with the authority to proceed to construction given once final stamped plans with council certification, home warranty insurance, and builder liability insurance are provided. Do no start the build without this authority letter as it can become a mess.

     
  15. Manic

    Manic Well-Known Member

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    In the same situation here but I'm hesitant to pay a 5% deposit until my lender unconditionally approves the construction loan. I can't complete the build without the loan and I'm at risk of losing my deposit if the lender doesn't approve the loan. I signed the loan subject to finance and no deposit until finance is approved. My builder wasn't happy but understands the situation. Makes things a bit awkward.
     
  16. tobe

    tobe Well-Known Member

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    Haven’t met a lender yet that doesn’t want stamped plans and insurance before they draw the build loan. Cba isn’t special.
     
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  17. sash

    sash Well-Known Member

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    Yes...true....but some it is just a formality and they issue the Authority to proceed quickly...
     
  18. tobe

    tobe Well-Known Member

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    Formality? Like they would do it without seeing insurance and stamped plans? That’s not my experience.

    And all of the banks progress payment teams are understaffed. They all take ages to issue the authority to start letter or equivalent depending on volume of business.
     
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  19. sash

    sash Well-Known Member

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    Interesting....some banks are able to do this under a week.
     
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  20. Lindsay_W

    Lindsay_W Well-Known Member

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    Strange, I've been seeing 2-3 business days with most lenders this year with a number of construction deals I've done.
    They must be getting absolutely hammered for that to be the case
     
    Last edited: 11th Mar, 2020