Finance for Build

Does anyone know if it is possible to obtain finance to build a house on a block of land that you own outright if you are not employed? It is not for me, it is for a family member who has recently become unemployed to setup a new business. Said person is in the process of a subdivision of a larger block, it is all approved and wants to build a house on the remaining block (side by side) and either sell it off or rent it out. Not sure if banks would look at either more or less favourably. Just doesnt really want to have the block there not returning anything at all.

 

If the loan is non coded and therefore done in the name of his new business Yes it would be possible.

Could be done as a short term loan and then refinanced once the borrower has a couple of BAS or similar to roll out to a traditional lender.

Subject to lvr could even capitalise the interest along the way.

 

The obvious questions is how would the pay for the loan if they're not earning an income?

The rent is an obvious source of income, but that usually doesn't cover all the other expenses people incur, such the cost of living.

Lenders don't consider selling the property to be a way of servicing the loan, at least not for residential mortgages. There may be some scope to do it under commercial lending.

 

Yep thats what I figured. The rent will obviously service the loan but they will look at lifestyle expenses of the borrower. So I thought maybe there was a way around this like a trust or company structure etc.

 

No way around it as every lender considering a coded loan will want to look at his living expenses and general costs of living.

Rent at a discount rate will be considered as income.

 

Under standard resi lending - will need to demonstrate income to meet lifestyle/other debts. They will use the same standard for assessing this situation as everyone else - review entire income and expense profile to determine what they're willing to lend.

For now, it would be difficult without any income. In terms of the additional debt itself (excluding other factors in serviceability), usually the yield on a construction is enough to service that additional debt (e.g. $500 p.w additional income on a 200k construction contract).