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Rural construction loan

Posted: Sat Apr 24, 2010 7:59 pm
by matilda
After ringing around several banks today, it seems we will probably find it difficult to gain approval for a construction loan in a small town. We are currently renting in the city, and plan to relocate the family to a rural town. There seems to be a number of stumbling blocks, including:
1. Not enough equity/deposit: We have purchased a 1/4 acre block of land in a tourist/agricultural town (pop: 400) and own 20%, which is only about 5% of the total value of land plus construction contract. Lenders are telling us they need 20% (or some say 30%).
2. Employment: While I have a healthy income, with ten years employed with the same national employer, there seems to be some doubt over relocating too far from where I work. I have extended leave on full pay coming up to support the relocation, and plan to either find other work or commute.
3. Build: the builder requires a 5% deposit on signing of the contract, but many lenders are telling us we will need to come up with this cash ourselves, as they will only advance funds on pouring of the slab.

Do we have any options, or is our scenario just too hard for lenders?

Re: Rural construction loan

Posted: Sun Apr 25, 2010 8:34 am
by Otto Dargan
Yes this is a tough one! From a lenders point of view the problems are:

* The location is remote, therefore the security provided is a higher risk than security in a major city.
* You do not have significant equity, therefore LMI approval would be required and the risk of loss to the bank is high.
* If you move to the new location then there is a high chance that you will be leaving your job.

If you can let me know the following info then I can confirm if we can help:

* The value of your land
* The location of the land (suburb)
* Which services does the land have available? E.g. Power, town water, sewerage?
* Estimate cost of construction
* Where do you work (suburb)?
* The amount you owe on the land
* The lender you are currently with

Indicatively a 90% loan MAY be possible, however 95% is highly unlikely.

Re: Rural construction loan

Posted: Sun Apr 25, 2010 7:28 pm
by Otto Dargan
Note: Extra details received via private msg.

The area where your land is is too far from Melbourne for a lender to accept that you would commute each day. If you had a relative that you stayed with in Melbourne during the week then a lender could accept that.

Aside from that I believe a loan for up to 90% would be possible. Note that we cannot do loans for less than $200,000 however I will msg you some details that may assist you.