Construction loans and Equity

Discussion in 'Loans & Mortgage Brokers' started by Viet Nguyen, 8th Oct, 2020.

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  1. Viet Nguyen

    Viet Nguyen New Member

    Joined:
    29th Oct, 2017
    Posts:
    3
    Location:
    Newcastle
    Hey Team,

    I am looking to purchase my PPOR and just running through the numbers but not sure if i am doing this correctly?

    1. Purchase PPOR $570,000 P&I loan - Loan amount $540,000, LVR about 95%
    2. Complete renovation in 9 months
    3. After renovation value about $650,000 - Loan balance after 9 months about $531,000, LVR 82%
    4. Complete DA application for Subdivision 1 into 2, build new home on subdivided block and keep existing home on other subdivided block
    5. Now this is where i get stuck, applying for the construction loan to build the new house.

    Firstly, am i even in a position to be able to apply for a construction loan if my LVR will be 82%?

    Secondly, the value of the subdivided land will be worth about $140,000 (before subdividing, the total land value is about $300,000). The construction cost is about $460,000. Adding both together, $600,000. I believe a lender may be able to lend me up to 90% of $600,000? So i'll be able to borrow $540,000?

    Thirdly, what documents will i need for a construction loan? I assume the DA approved plans and consent letter and a builders quote, is there anything else?

    Fourthly, is it difficult to obtain a construction loan in today's market? Which lender would you go with? And why?

    Thank you in advance for your assistance.
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

    Joined:
    18th Jun, 2015
    Posts:
    41,672
    Location:
    Australia wide
    lender could lend 90% of land and construction - potentially. You will need to include both blocks as they will be one title until subdivided.

    Construction is not hard in this market.

    See a broker for some credit advice.
     
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  3. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

    Joined:
    14th Jun, 2015
    Posts:
    10,599
    Location:
    Gold Coast (Australia Wide)
    May work, IF you can get subdiv BEFORE construction starts, otherwise your valuation will likley have a 15 to 25 % haircut due to non completion risk, because the product will have a limited market, and significant costs to get to completion

    In one line or OOT ( on one title ) vals risk sink many higher lvr projects such as this, and the focus needs to be to get the separate title before construction lending

    ta
    rolf
     
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