Valuation shortfall and LMI waiver with 90% for professionals

Hi all, I am currently in the process of obtaining finance to build a house on a land I previously purchased. The land was financed through CBA (fixed term ending Jan 2021) and naturally I expect to go with the same bank for the construction. Our overall valuation is exactly what we wanted ($900k) but the the valuer has overvalued the land ($550k) and undervalued improvements ($350) creating a $150k gap between the building contract ($500) and the improvements value. The land was bought and valued at $400k 1.5 years ago so. My broker says the contract being undervalued won’t matter as I can draw from the land’s increased equity to plug the construction price deficit. We expect to pay $50k for the build (90% borrowing), hence this approach should provide us enough money to pay the builder. I wanted to check if this approach would be disadvantageous for me in any way?

Additionally, I’ve just been told that CBA has recently removed the LMI waiver on 90% LVR loans for professionals (which I previously qualified) for construction loans. I’m assuming this is due to increasing unemployment but not sure how accurate this is. I just wanted to check if this is true and if there are other banks who continue to provide a similar waiver? My broker had called a couple of banks and has been told it’s similar but I’m not sure if he checked with all the banks. I’m also conscious that the loan for the land is with CBA and is fixed until Jan 2021.

Appreciate if you could provide some advice and let me know the options I have given this complicated situation. Thanks!

 

Think ANZ may have the waiver - but will depend on the profession itself.

Not sure if there's a val shortfall if overall figure is OK. Strange for a build contract to be that far above valuation - perhaps missing items not included in the valuation report (e.g. landscaping, fencing, etc) that may be part of the val.

 

Thanks Redom. The profession is accountant. It looked like the valuer has arrived at the overall value of $900k using previous sales, valued the land and allocated the balance as construction cost. I’m not sure how realistic it is to build a 32sq double story house with $340k. Our construction cost is a bit too high as our design needs structural steel hold the first floor, which needs to be significantly smaller than the ground floor to meet council requirements. The value allocated to the land represents a 37.5% increase over a 1.5 year period, which I think is not realistic.

 

Thanks Rolf. They building contract is c.$500k as noted above. In summary, actual land cost is $400k and actual building cost is $500k. According to the valuer land value is $550k and building value is $350k. The total is $900k in both case. I’ve already borrowed $360k to purchase the land and need additional $450k to pay the builder ($50k savings). So my total borrowings will be $800k (89% LVR), and I was hoping to get LMI waved off.

 

Most recent sales for similar properties in the area has been around $950k- 1mil range. So I believe the valuer’s conservative assessment of $900 is justifiable.

 

Hi Rolf, That option is there but it’ll be a bit costly cz the land is mortgaged with CBA and it’s a fixed contract until January 2021. We’ll have to break that if we’re going with another bank.
However, if we get a valuation of 1 mil, I guess we can try to stay around 80% LVR and i reckon the cost of breaking the contract could still be cheaper than paying LMI (although will need to account for time value of money).

LMI waiver was for CPA. Both me and my partner are CPAs.