Off The Plan Home Loan
What is an off the plan purchase?
Many investors choose to put down a deposit on a unit or townhouse that is to be built, before a single brick has even been laid. This is known as an off the plan purchase because all the investor has to go off is the building plans offered by the developer.
This is a popular choice because the investor will often get a significant discount below the market value and the property may appreciate in value before settlement occurs.
How much can you borrow?
First home buyer: 95% of the property value (restrictions apply).
Investor: 95% of the property value.
Low doc: 80% of the property value.
Discounts: Competitive professional package and basic loan discounts are available.
Please call us on 1300 889 743 or enquire online and one of our mortgage brokers will help you to get your mortgage approved.
When can I apply for my mortgage?
More than 18 months until settlement
You cannot apply for your mortgage if settlement is over 18 months away. You are taking a risk because you need to apply for your loan at a later date and if you cannot get approval then you may default on your contract and lose your deposit on the property.
You should only consider this option if you are in a strong financial position, you are borrowing less than 80% of the property value and you have obtained independent legal and financial advice.
3 – 18 months until settlement
Most lenders can issue a pre-approval at the time you sign the contract, however by the time settlement comes around they will want to reassess your loan application in full. If your situation has changed or if lending criteria has changed, then you risk being declined and possibly losing your deposit.
One of our lenders can issue a formal approval if there is less than 18 months until settlement. This gives you the confidence to enter into the purchase contract knowing that your finance is secure. The lender will complete a valuation based on the plans provided by the developer. Please call us on 1300 889 743 or enquire online and one of our mortgage brokers will help you to get approved.
Less than 3 months until settlement
When the building is close to completion you can apply for formal approval with most lenders. Some lenders will require the building to be complete before they order a bank valuation.
The lender will ask for a certificate of occupancy prior to settlement, the developer typically issues this around two weeks before settlement is due.
Valuation or purchase price?
With a normal purchase banks tend to use the lesser of the purchase price or valuation when determining how much you can borrow. However with an off the plan purchase it is not uncommon for more than 12 months or even several years to have passed between when the price was agreed and when the settlement occurs.
Because of this some banks will use the market value rather than the purchase price when assessing your Loan to Value Ratio (LVR), LMI premium (if applicable) and final loan amount.
Can I get multiple valuations?
Some people choose to get valuations from multiple lenders, and then apply with the lender that had the highest valuation. This can allow them to borrow more money or reduce the LMI premium they would pay.
In theory this works just fine, however in practise most lenders require you to apply for a loan before they will do a valuation. If you apply with multiple lenders then you are almost certain to fail the credit score of the lenders due to having too many enquiries on your file.
However some lenders can allow you to order a valuation prior to submitting a loan application. We can help you to order valuations prior to applying for a loan, so that you can maximise the amount that you can borrow.
Why are the banks so conservative?
Banks tend to be more conservative with off the plan sales because in some cases properties are sold for more than they are worth and the bank valuers have failed to notice the discrepancy.
Although you may make a small fortune from your investment, the bank is only concerned about their risk. Because of this many banks limit their mortgage loans to 80% of the property value. By using a mortgage broker you can find a lender that is willing to take a common sense approach to your off the plan purchase.
Am I paying too much for my property?
We see some people who have been sold overpriced off the plan properties by sophisticated marketing companies. Whilst we cannot give you investment advice, we strongly recommend that you do your own research into the location, the reputation of the developer and the value of the property before you sign the contract of sale.
In particular you should look at comparable properties that have sold in the last six months that are not in the same development that you are buying in. You can refer to our page on how to value a property for more information.
Apply for an off the plan mortgage
Do you need help to get your home loan approved? Please call us on 1300 889 743 or enquire online and one of our mortgage brokers will help you to choose a suitable lender and loan product.