Getting my head around LVR & construction loan

Discussion in 'Loans & Mortgage Brokers' started by Tony Clark, 22nd Jul, 2018.

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  1. Tony Clark

    Tony Clark Well-Known Member

    Joined:
    3rd Sep, 2017
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    Location:
    Gold Coast
    Hi All,

    We currently have a piece of land valued at approx 40k. We want to get a construction loan to build on it. Building cost with be 150-180k. We currently only have approx 22k equity in another property that we can extract. I believe the deposit required is relatively high due to the land being in a high risk area. My question is... I assumed that the deposit required would be based on what we wanted to borrow, say 150k, but we were told that it is in fact based on the expected value of the property once it is built - which will be around 260k. This obviously brings the deposit required up quite significantly. Does this make sense, and can anyone she some light on how this works.

    Any info would be greatly appreciated!
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker Business Member

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    Don't think deposit think LVR.

    Banks will lend up to 90% of land value and construction contract price.
     
  3. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Two questions:

    1. How much will you borrow to complete the construction?
    2. What's the house going to be worth once it's build?

    LVR = 1 / 2

    If this is less than 90%, you should be fine, but I'd suggest holding at least 5% of the construction cost in reserve as cash, just in case things happen (which they often do with construction).
     
  4. Property Twins

    Property Twins Finance Strategists Business Member

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    You can have as if value. Wasn't this a kit home ?

    Have you factored in the LVR restrictions (if any) in the location?
     
    Last edited: 22nd Jul, 2018