FHB - H&L - Financing issues

Hi all!

I am in a bit of a dilemma which I am wondering if anyone can give me advice on. I'll take all advice on board and treat it as such, general advice that is not intended on being legal or financial.

My situation currently is that I have purchased a piece of land (I am a first home buyer) in May 2016 for $250k and I put a 10% deposit on it. It doesn't title until May 2017 of which, I intend on putting a house there to live in.

I have priced up the build with Burbank to be around $280k. Plus other incidentals, it'll come out to be 300k. But probably can't take out a loan for all that.

My issue is that I am trying to not pay LMI as I've lost a lot of money on the share market and don't have much savings anymore but I do have a high paying job with no children, wife or girlfriend.

My last resort is to use my father's line of credit he has for his current house to pay for my land (he has paid his house off). He has roughly $220k that he could draw down on, of which, I'd be paying the mortgage. I'm not sure if he is willing to take on that risk, even though it'd be for one year. I'd then go to the bank to get a construction loan to pay for my build. This way, I'd have 20% by that time (Mar/Apr) or close to it, so that I'd not have to pay LMI.

Once I get my letter of occupancy, I'd then transfer it to one home loan.

This sounds good, but it's quite messy and I'm not entirely sure my father would go with the idea. Is there any other method or way that anyone else knows that I could potentially do?

Also, is stamp duty only payable on my land and being a first home buyer, do I get 50% off stamp duty?

thanks to all!

 

Yes i believe so but please do check.

Any reason for not getting loan for land + build? (I do this, the only issue is undervaluation + additional deposit). Have you talked to a broker?

 

You'll get a 50% reduction on the stamp duty of the land being a first home buyer. You'll also get the $10k grant when you start building.

Thus the purchase costs are going to be about $7,500. This is mostly stamp duty (which is actually$5,185 on a $280k land purchase as a FHB in Victoria).

The 20% deposit on the entire deal which you've costed to $300k will be a total of $60,000. Given the $10k grant, to avoid paying LMI you need about $57,500.

If you don't have that much, you'll either need to source the difference or borrow more than 80% and you'd pay LMI.

If you do borrow money from your father, you can't simply transfer it to the loan later. This requires a new valuation and application. If everything stacks up it can be done, but if the valuation is short, you won't be able to add your parents contribution to the loan.

 

Do the loan for both now. Either do the approval based on lmi or get a gift letter from dad for an 80% loan. When titles/land settlement rolls around either pay lmi, or rework the loan with the extra deposit you have saved.

Don't do a loan just for the land.

 

Thanks for your information!

Would I pay stamp duty based on the contract price of the land or the market valuation. I bought it for $250k but land of this size are going for $280k in the area. In another 5 months time, they'll most likely hit 290-300 at this rate. So I'm not overly concerned about market valuation at this time. Particularly due to the fact that if I begin building in May/June (when the land titles) and it's ready by January/February 2018, I'd assume that it'd be worth a lot more than the total I'm paying.... hopefully.

Also, I was told that if get a normal home loan once I receive the letter of occupancy, I'd be able to pay off my father's loan that I've used using those funds. But yes, you're right in saying that I'd have to get it valued etc. which I'm not overly concerned about in our current climate.

I currently have $22k in cash and shares and zero debt. I should be able to save another 20-30k in the next 6 months til May. So that should give me savings of around 40-50k. Will the banks look at the first home buyer's grant and add that to the deposit or will they just deduct it off my loan amount when I begin building?

Thanks again for your help.

 

I definitely won't do a loan just for the land. I was going to use my father's facility to get to pay for the land until I can combine the land and building once the building was complete.

I didn't know that I could rework the loan after doing all the paper work initially. So if I save the extra money to avoid LMI on the construction, then I'd be able to not pay for it/get a refund?

 

The loan offer will show an lmi charge, but if you rework it you can avoid actually paying (if you have a 20% deposit)

Stamp duty is based on the land value, which most of the time is the same as the land contract, however check with your conveyancer.

Note about valuations. Don't compare the value of your land with the current 'advertised' prices of land in later releases. It'd be really unusual for the banks valuer to recognise an increase in land value in new estates.

 

Valuation will occur once a house is on the land and it'd be valued as an established house, right?

I'm not sure why they don't do that. 4 years ago I could have bought my land for $180k in the area but land is now $280k that is being released. So in effect, when you buy, you're paying stamp duty on the higher value. So it kind of doesn't make any sense.

 

Valuation is done 'as if complete'. The valuer looks at the plans and assumes it's complete and compares it to similar property sales (not developer sales, not new builds) in the area.
The bank sends the valuer out once it's built to confirm it's been built but this isn't a valuation, just a confirmation the works are completed to the plan.

 

In my case, the land and building contract is value 'as if complete' - this is about 4 months before land being titled. Land valuation come on contract, building has shortage.

 

You'll only pay Stamps on what your Contract states the land price is. Balance of Land Contract is due at Settlement after Titling.
So all up your H&L "package" is costing you 550k? Plus costs of course.

 

$550k that includes costs. so $250k for land and $280k for build. Then add in LMI, driveway, fencing, landscaping for the rear of my house, letterbox, independent building inspector stamp duty and FHOG it'll come to $20k on top of that. So roughly $550k for a parcel of land that is 576sqm and a 33sq house with 2 master bedrooms, which is 3 bathrooms, 2.5 car garage, grand alfresco... so basically, a nicely done house that will be great for a family in future that is 37km from Melbourne CBD.

 

whereabouts is this 250K for land? 33sqm house is huge.

 

get the driveway, fencing, landscaping and letterbox included in the build contract then you can borrow against it. Otherwise you need to pay cash for all of these items, and missing them, the valuation may come back short, or the assessor at the bank will ask to see you have the cash to complete these items. Banks dont like 'security' that isnt saleable 'as is'. If you dont pay the loan and they foreclose, they want to be able to sell straight away, not have to get a fencing contractor out first or put the driveway in.

 

Ahhh very good point! One that I did not know. I was worried that i couldn't include those costs in the loan. So I have to get my builder (burbank) to include it in the build contract? THey'll do that even though they aren't charging me for it as it's all separate?

 

I bought out in Mickleham in May. Prices are up since then. But, there's more places opening up in Donnybrook... I'd say for the same sized land, it'll set you back around 280k... IF you can get that size land anymore. They seem to get smaller and smaller.

 

I excluded heaps from my building contract and the valuation was nasty! Valuer is atleast 200k off the mark but used an example in a suburb 10 post codes away that was not finished and had a drastic effect on sale ability.

I have a number of conditions in my finance about this stuff but ultimately I know I have the cash to cover it and am saving buckets by self providing and doing things such as driveways after hand over.

Point is if you have the cash then you can do these things after handover. If you don't then you will need to have them in the contract and just cop the builders prices and margin.

 

Burbank can put them in the contract and do the work, or they can load an 'allowance' into the contract and you can get quotes from local (cheaper) contractors that get included in the valuation.

 

I actually mislead you. My house with my extensions is going to be 34.8sq lol it's going to be massive.. with all fees and other costs on a 576sqm block of land, it's costing me $550k. Not bad!

That's a complete house.. done.. front landscaping, driveway, blinds, backyard landscaping, stamp duty, independent building inspector, legals... you name it, I've got it in that price.