If building a new house can you borrow to establish it....?

Any general questions you might have in regards to loans and finance.
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If building a new house can you borrow to establish it....?

Postby DeeO » Thu Jun 10, 2010 9:56 am

Here is my situation...I have a block of land that is valued at $300,000 I owe $170,000 on it. The House I want to build on the land will cost about $300,00 inc sheds, carpet, floor coverings and establishing the garden....so my total loan will be about $470,000 Does any one know if the bank will value the house at what they believe it will be worth when its built or do they automatically say house $300,000 land $300,00 total they will lend is 80% of $600,000. Do they include things like carpet and gardens in their valuation or do they say house value is is $260,000 land $300,000 and then lend on that?...hope I made sense Thanks

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Otto Dargan
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Re: If building a new house can you borrow to establish it....?

Postby Otto Dargan » Thu Jun 10, 2010 10:04 am

Hi Dee,

The bank valuer will usually work out the value to be the cost of the land plus the cost of the building contract. So if gardens, landscaping & sheds are not included in the building contract or you do not have a final quote for that work available when you apply for the loan then they will not take it into account.

For the sake of this example lets assume that your land is worth $300,000, the house is costing $270,000 and the other work (shed, landscaping etc) is costing you $30,000.

The bank valuer would likely value your property at $570,000 unless you had final quotes for the other work.

Often it isn't possible to get a quote for this other work at this time. One possible solution to this is to negotiate with your builder to include this work in their contract. This is not always feasible, however it is worth exploring this option.

The banks can lend over 80% for construction loans. A 90% loan is usually quite easy. Borrowing 95% is very difficult.

Don't forget to read our tips for construction loans, it should help you avoid making the common mistakes that catch out most people.
Otto Dargan
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