No two lenders are the same when it comes to new builds
Building a new home is more popular than ever, as evidenced by Mays strong building consent data.
Aside from the obvious benefits of getting something brand new and just how you like it the demand is supported particularly among first home buyers with exemptions from LVR restrictions and eligibility caps for government support being higher for new builds.
However building isn't for the faint hearted and aside from the complexity of the building process itself, before you even start finding the right lender can often make or break for customers who require finance for their new build.
As with buying an existing property, rates and lending criteria can vary significantly between lenders for build loans and even if the lender says yes getting the wrong loan in place can leave your customers in a far worse position long term.
Consider when looking at a build loan
- LVR (loan to value ratio) - This is the percentage of the project banks are happy to fund, The maximum LVR available when building generally varies between 80% - 95%. LVRs above 90% are usually restricted to land and build packages or turn key builds. This means with the right lender customers could build a new home with as little as 10% deposit or even 5% for a Turnkey Build.
The risk appetite and funding available for each lender varies over time. We keep tabs on this so we can direct clients to lenders who are in the best position to help meet their needs. No from one lender doesn't mean no from the lot.
- Valuations – All banks require a registered valuation prior to the build starting. This valuation is of the “as completed” value based on the build contact and specifications. Some lenders however require further valuations during the build, others don’t, which could save the buyer some much needed money for a new TV of coffee table once they move in. Lenders also use different calculations for LVR, some using the value of the completed home as per the registered valuation other using the cost to complete method. Finding a lender who will use the registered valuation approach will lower the LVR could save the buyer money on low equity margin/fees.
- Fixed price contracts – Lenders have different requirements for what must be included in a fixed price contract. This depends on LVR but for some lenders the contract must include everything down to the letter box, while others allow more flexibility. On build loans over 80% LVR provisional costs (PC Sums) are another variant between lenders. This area can be very confusing so it pays to look carefully at it before deciding on a lender or in fact a builder.
- Contingency – Depending on lender between 0-15% could be added to a fixed price contract when calculating loan servicing to allow for any cost overruns. This could affect the level of borrowing. For example ,a fixed price contract of $450,000 could actually be assessed at $517,500 (15% more) making a big difference to what can be borrowed.
These are just some of the differences between the banks when it comes to construction loans.
Finding the right loan is only part of the process.
Loan Market offers advice and support right through the process.
Pre approval for land and build normally lasts only 90 days with most lenders, so this needs to be maintained and updated accordingly. We manage this part of the puzzle, many lenders will leave this to customers to self manage.
We ensure any ongoing conditions are along the way, meaning nothing is overlooked and funds can be drawn down as required.
I can work with your customers to make sure they paired with the best lender for their needs, whilst also ensuring they also get the best deal and look after them throughout the process.