Split contract loans?

Hi all,

Have you faced any issues getting a loan on a "split contract" meaning developer and builder selling a Townhome. Land settles first and developer gets paid right away. Build starts next and loan is redrawn as you go.

You sign 2 contracts.

One broker (of the few I am researching) said "no bank will touch it" as they have split contracts. They had one case turned down for loan in the past.

No other broker neither the bank rep has said this.

There are no common walls no strata no common slabs in the property - just to add.

Any ideas?

B.

 

Some banks will consider it, not all banks' appetite.

 

no probs with that. It is fairly common.

 

Thanks guys. I'm super nervous after hearing this broker. I won't have the build contract until.3 weeks after signing the land contract.

Just want to ensure I do get a loan if I sign the land contract in a few days.

B.

 

In that case probably a pre-approval is worth considering.

 

I wouldn't be keen on signing the land contract without having the fixed price building contract signed.

They will have you over a barrel if you buy the land then the cost for the building blows out.

 

Thank you guys!

Rolf - I think you are spot on! I think she freaked out hearing 'Split contracts' and assumed a lot.

All those criteria you listed don't sit with the one I'm looking at.

Really appreciate your help.

And everyone else's on this forum

B.

 

Banks usually don't like split contract becuase some of the land contracts has a clause to prevent the buyer to use other builders BUT the developer preferred builder.

This is a risk to the bank becuase if the bank repossessed the land. Under the land contact term the bank can only sell the land to another person that accept the fact that they can only build with this particular builder, which decreases the marketability of the land.

Usually for contracts like these the bank either require the developer to remove such clause or obtain internal legal approval before proceeding.

 

Right. Yes, in my case I enter a contract with both the developer and a builder picked beforehand.

B.

 

This ^^^....any time there are restrictions or limitations on the lenders ability to sell as mortgagee into an open market (in this case choice of builder) you are going to have issues of either not being acceptable security or if acceptable a lower max LVR. Serviced apartments, company title apartments, multi units on one title, life tenancy etc etc.

 

Hi OP,

Have you had any luck finding a lender that accepted the split contract? I am currently in the middle of this and have had 5 valuations all come back risky due to the contract type.

Thanks.

 

Hi Froggy,

Sorry to hear you have been having issues on that front. I decided to go with a different house and land package, so there is no particular builder tied in with this block of land.

The reason I decided to go with a vacant land was purely because this new lot fits my requirements better. That said, I was already in talks with my bank about the previous contract and they never raised any concern and were ready to pre-approve as well.

I have not yet reached the valuation stage (coming up in April). Every suburb is different, every estate is different. I believe the valuation factors in other things such as demand versus supply in the area. Is there an excess of supply in the area you are looking at? One such example is Tarneit. As sumterrance mentioned earlier, if the valuation comes lower than what is estimated, and should the bank repossess the land, they may not be able to sell it unless the new purchaser agrees with going with the builder in contract.

My thinking is more in alignment with what Rolf said above though - is your contract something similar to a duplex pair or a townhouse?

B.

 

Split Contract - Land & House : Where land and developer are the same or have an association. You agree to use their developer. Issue the contracts have a clause in it that is unfavorable to the lender. Why some loans get through and other don't with the same is lender is whether or not the assessor / valuer picks it up. Some lenders like NAB will do them.

 

Update - Mortgage Domayne got me unconditionally approved through CBA

 

Hi Froggy, we have found ourselves in the same boat now... could you please share with us who was your broker that helped to approve the loan?

 

Shouldn't be an issue for most lenders, where they can get stuck is the valuation, comes in low due to inflated land prices.

 

Our lender has advised that they wouldn’t not be able to service this loan as house and land package... they consider it as a split contract, hence - not eligible for construction progress payments

 

Who's your lender?
Use a broker
Most House and land packages have two contracts, one for the land with the developer, and one for the build with the builder.