Finances related to turn key House and Land packages

I understand how buying a house works pretty well now (I think).

Now I'm trying to understand how finances related to house and land turnkey packages work.

Are those same as construction loans (as in, not turnkey)? What I see on advertisements is something like "pay 10% up-front, pay no progress payments and settle once construction is completed."

Say you have a 100,000 deposit, a borrowing-power of 400,000 and the turnkey package being 500,000.

When do you apply for the loan? Is it only after the construction is completed since an accurate (if it ever is) value cannot be estimated until then?

Would having the land already titled make a difference other than the time it takes before you can move into the property?


Thanks

 

Two types of financing:

H&L construction:

H&L packages are usually construction progress payments. I.e. you buy the land & then you build the house and pay the builder in progress payments. I guess it depends on the state purchasing and marketing of the products, but these H&L packages can be turn-key too. I.e. they pre-package the builder up and sell it in one go to you. Land is usually close to titling or already titled here.

This is most common for 'detached houses'. I.e. greenfield estates.

Deposit upfront, remain upon completion:

What your mentioning is more like OTP financing.

I.e. you pay a deposit now and do nothing until the property is near completion. Once the property is just about complete, you will arrange finances (2-3 months prior to settlement). The valuer goes in, confirms its worth what you paid for it & then the bank will fund the remaining loan that you seek. You pay the rest at settlement.

This is required for attached dwellings (units, townhouses connected, etc).

Valuer rule changes in 2014 or so forced attached townhouse contracts to move into this structure.

 

Thanks @Redom for the answer.

I'm looking only at turnkey H&L construction. So, in this case, the loan would still be a construction loan, right? That means, the lender has to approve the loan before the house is built, even though the land is not titled yet. So it is safe for the borrower, as in the loan would not affect any changes to the policies or borrower's financial position between then and the time the construction completes?

 

Based on what you see on the advertisements it's the latter of the two scenarios I mentioned.

In this case you will be subject to lender requirements when the product is complete. Ie in a few months time if it's a house (completion date). If your situation changes and gets worse prior to completion, you may be at financing risk. It's a good idea to plan your finances and your financial position at completion time upfront. You can't finance these unconditionally now. Only when complete. Hence plan for then.

 

I see.

But if you can find a titled land and get a builder to package them together as a H&L package, then it would be the former?

 

Correct. It all comes down to control - if the land is titled and you can actually settle then the title can be held as security by the lender - otherwise if not titled the lender cannot secure their debt they are providing.

If the land is already titled then the land and construction loan can be formalised - they will value it based on the expected end result and then will do a follow up valuation at the final completion of the property.

 

@Corey Batt In that follow up valuation, it can come in shorter than what the lender originally estimated, right? What happens then?