Join Australia's most dynamic and respected property investment community

Construction loan in my name, Land title in partners name. Can it be done?

Discussion in 'Property Finance' started by drg86, 30th Jun, 2016.

  1. drg86

    drg86 Well-Known Member

    Joined:
    25th Jun, 2015
    Posts:
    279
    Location:
    Newcastle
    Hi all,

    Have a situation that may arise next year and want to start preparing/structuring the correct way.

    My partner recently purchased a block of land for a new PPOR. Loan and title in her name for some protection as most the IP's are my name. Also bank wouldn't lend as much with me on loan as already have 3 IP's to service.

    Plan to build next year. After selling an IP to gain funds and increase serviceability I will also need a construction loan for the rest of the build. Will/can a lender give me finance if the title is in her name?

    Numbers are roughly:
    Land 200k
    Loan 150k
    Deposit 50k

    Build cost 350k
    Funds from IP sale 150k
    Construction loan needed 200k

    End value 700k
    Total loans on property 350k
    Equity 350k
     
  2. tobe

    tobe Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    897
    Location:
    Melbourne
    The title needs to mirror the borrowers. You cant have a separate loan for the build to the loan for the land, becasue the security is the same.

    You need to refinance (or extend/increase) the land loan to increase for the build.
    You could both be on the title and the loan, she could be on title and both on the loan, or her on title her as borrower and you as guarantor. Those are your choices.

    Every lender I have come across can accommodate any of these three choices. None will give you a separate loan for the build without security.
     
    Jess Peletier likes this.
  3. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,782
    Location:
    Perth WA
    As Tobe said, your partner will also need to be on the loan in some capacity, either as co-borrower or guarantor. But assuming servicing is fine, it's not a problem at all.
     
  4. drg86

    drg86 Well-Known Member

    Joined:
    25th Jun, 2015
    Posts:
    279
    Location:
    Newcastle
    Thanks Tobe and Jess

    Yes I understand the issue is around security. All going well we will have both names on the construction loan secured against the new PPOR. Just concerned as we were unable to do this for the land, capacity dropped when my name was included. If not I may be able secure it against an IP if there is continued growth, but don't really want to. Much cleaner and simpler if all on PPOR then we can just concentrate on paying down the non-deductible debt for a few years if we get this over the line.
     
  5. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

    Joined:
    18th Jun, 2015
    Posts:
    2,782
    Location:
    Perth WA
    It may have been a lender issue - who did you go with? Some lenders are better than others for servicing with a few IP's in place.
     
  6. drg86

    drg86 Well-Known Member

    Joined:
    25th Jun, 2015
    Posts:
    279
    Location:
    Newcastle
    It was definitely a lender issue. My partner works for them and they are very conservative, but she likes that, helps her sleep at night. If they can lend to her than it means she can comfortably afford it.
     
    Jess Peletier likes this.
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    9,039
    Location:
    Sydney
    Yes it could be done. It all depends on security.

    Only legal owners could give a mortgage over land they own. As you do not own this land you cannot give a mortgage. But that doesn't mean the bank will not lend to you and spouse jointly. Many will.

    But if she is mortgaging the land you would have to go with the same lender that is the mortgagee. They would likely want the land component and the construction component to be the same borrowers, but there is no reason why the construction component cannot be in both names or in your name with a guarantee from the spouse.

    Another alternative is you borrow secured by other property and fund the construction that way.

    You should seek legal advice on the asset protection aspects because even though you are not on the title to the land you could end up losing half of the property if you were to end up bankrupt.
     
    Perthguy likes this.