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Serviceability for home and land PI purchase

Discussion in 'Property Finance' started by camp, 19th Oct, 2015.

  1. camp

    camp Member

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    I'm applying investment loan for a home and land PI purchase at WBC, failed the serviceability mainly because they didn't include the rental income of the to-be-built property into the equation, claiming the property is not ready to rent out for at least 26 weeks.
    Spoke to a friend who has done similar project, but have had his rental appraisal included in the serviceability at STG.

    Questions:
    1. Can the rental be used in the assessment generally?
    2. Is it lender-specific policy not to include?
    3. Or is it recently regulated by APRA?

    tx
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Varies from lender to lender - generally will include potential rent if it is to be an investment property.
     
  3. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    Westpac should accept the proposed rental income - do you have savings you could should to mitigate the decision? Whats the LVR?

    Most lenders will take the proposed rental income of the dwelling you are construction whereas very few don't.

    This policy isn't APRA specific - its lender specific rules.
     
  4. camp

    camp Member

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    thx Terry/Shahin
    80% LVR with some savings.

    i also expect WBC to take into account the rental, as STG does it.
     
  5. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    Seems a bit strange - rental income for an IP to be constructed should be taken into account
     
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  6. camp

    camp Member

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    The loan officer from WBC came back, to include the potential rental into the assessment, however they won't accept the rental appraisal from local RE agent, but it'll be from the bank-initiated valuer.
    is it normal? or the bank just being difficult as I apply direct? would the serviceability be easier if i go through broker?

    He also asked to provide a copy of council approval (DA), as I understand the DA can only be issued post land settlement, ie. land title under my name, only then the DA application can be lodged and approved. but finance approval is obviously needed prior settlement. so isn't that like chicken-egg-which-one-first dead lock situation?
    I'm sure home land package PI purchase is quite common, is the finance application usually this complex?
     
  7. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    I'm surprised the WBC loan offer needed to come back to you on this, it's a no-brainer. Proposed rental income post construction is definitely assessable. In the most stringent of cases, an argument needs to be constructed for affordability during the construction phase, but this is easily addressed by having some savings to tide you over.

    Construction loans all need council approved plans and a fixed price building contract (I won't go into owner builder scenarios). Essentially the bank wants to be clear on what's being built which these documents (and a few others) demonstrate.

    None of this is particularly complex, it's standard practice for any mainstream lender. What's surprising is that the loan officer isn't giving you good information up front.
     
  8. Jamie Moore

    Jamie Moore MORTGAGE BROKER - AUSTRALIA WIDE Business Member

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    @camp - just sounds like you've landed an incompetent branchie.

    Cheers

    Jamie
     
  9. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Using the valuers rent appraisal is normally not an issue.

    I'm assuming this is not your only property due to the servicing issues - if you have other loans with WBC please be sure they aren't taking all your property as security. If you don't specifically say this to them, you'll come out the other side all cross collateralised.
     
  10. camp

    camp Member

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    It's a fixed price package, 2 contracts (not owner builder)
    Isn't the approval process comes after land settlement? am I missing something here?


    even more fun when it's mixed with a home-land first timer :confused:


    have a couple of others with WBC, but this won't be crossed with the other ones.
     
  11. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    If there's two stages, a land purchase, then a construction phase, you'd have to be able to service the land purchase without the benefit of the rental income. When you apply for the loan to build the property, post completion rental income can be included in the servicing.

    Usually the finance procedure overall simply follows the timing of the project. If you buy the land then build, you fund the land, then fund the build. If it's all a single transaction (basically buying the house and land off the plan from the developer), the whole thing gets funded in a single application.
     
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