Finance for Granny Flat

Discussion in 'Loans & Mortgage Brokers' started by filipe, 2nd Feb, 2017.

Join Australia's most dynamic and respected property investment community
Tags:
  1. filipe

    filipe Well-Known Member

    Joined:
    3rd Oct, 2016
    Posts:
    78
    Location:
    Sydney
    I am looking to buy a property as my PPOR. I can personally afford a higher loan than what I am being offered, but due to lender restrictions it seems they are not going to give me as much finance as I would ideally like (due to my income, circumstances, they are not as generous as I would like!).

    Therefore, I have to use more equity for this purchase (I have been saving to do this for many years and have a very sizeable deposit). The LVR will be under 70%. I was hoping to get a higher loan and then leave plenty of spare money to later fund a granny flat development in the backyard but now need to use all this money to purchase the property alone due to the low loan offered.

    I am wondering if I should proceed and buy the property I am interested in, knowing that I no longer have financial capacity to build the granny flat, and later on (6-12 months or longer) try and obtain separate finance to cover the granny flat build. Is this possible? Is it hard to get finance on a GF build?

    The granny flat would cost about $100-120k, maybe a bit more after fencing/etc is accounted for. The expected return is $400-500 per week. Being conservative I would say $425/week.
     
  2. Corey Batt

    Corey Batt Well-Known Member

    Joined:
    14th Jun, 2015
    Posts:
    2,091
    Location:
    Adelaide, SA
    It is possible - this effective paid down equity you've put down will then be able to factored towards the granny flat construction.

    Each lender has different policies on construction and granny flats, so it will be very important to ensure the right lender is used for the initial purchase.

    The main challenge with granny flats is they generally cost more than any subsequent value increase, so you will want to have a good reserve of equity/cash (which helps with your having the loan lower via the increased deposit). It's then otherwise treated as a normal construction loan and the rental income can be factored towards the borrowing calculations so long as the appropriate lender is used from day 1.

    Do you have any other home loans or is this your first property? Make sure you run this strategy by your broker before committing to any loan, the last thing you want to do is setup a loan which isn't appropriate for your plans only a few months later.
     
  3. filipe

    filipe Well-Known Member

    Joined:
    3rd Oct, 2016
    Posts:
    78
    Location:
    Sydney
    Thanks for the fast reply Corey, this is the first/only loan.
     
  4. Terry_w

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

    Joined:
    18th Jun, 2015
    Posts:
    41,672
    Location:
    Australia wide
    I think it could be possible too. Granny flats don't add as much value as they cost ususally, but if you are starting off at 70% you have some room to move.
     
  5. Corey Batt

    Corey Batt Well-Known Member

    Joined:
    14th Jun, 2015
    Posts:
    2,091
    Location:
    Adelaide, SA
    Nice and simple then - as above just ensure you let your broker knows the intention moving forward so it's factored into lender and product selection.

    If you're going direct to bank, save yourself and get a broker - better to have access to not only a larger selection of product and rate, but various lender policies.

    When it's your choice, its better to get the lender that fits your plans, than fit your plans to the lender.
     
    tobe and Ethan Timor like this.

Build Passive Income WITHOUT Dropping $15K On Buyers Agents Each Time! Helping People Achieve PASSIVE INCOME Using Our Unique Data-Driven System, So You Can Confidently Buy Top 5% Growth & Cashflow Property, Anywhere In Australia