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HSBC won’t do a construction loan - Need a house and land package

Posted: Fri Oct 18, 2019 6:30 pm
by Roxy
Hi, I’ve been banking with HSBC for a while but I need a construction loan as I’ve found a fully titled vacant land to start building asap. We’ve found a reputable builder to go with, as they recently did a colleague’s build. I want to buy the land and then build in Greater Sydney NSW. Which lenders would you recommend for a house and land package?

Re: HSBC won’t do a construction loan - Need a house and land package

Posted: Fri Oct 18, 2019 6:52 pm
by Otto Dargan
Hello Roxy. Welcome to the forums.

HSBC historically haven’t been great at construction loans and it looks like they’ve now completely stopped offering them altogether. However, there are a few lenders on our panel who’re great at this who can help you with a house and land package loan.

The first part would be buying the vacant land which is very similar to a standard home loan. You’ll be able to borrow up to 95% of the land value. Generally, 5% to 10% must be paid out to the vendor.

Then you can apply for a construction loan. The loan amount will be based on the lower of the bank’s “on completion valuation” and the cost stipulated in the building contract. Generally speaking, 5% of the total building cost is paid out to the builder up front.

You’ll need to have a signed building contract or tender/ plan specifications and a drawdown schedule. The best part is we’ll roll the land into the construction loan and that means interest-only repayment at principal and interest rate (owner-occupier) during the construction phase. In addition, you’ll only pay interest on the actual amount drawn down.

The key is to apply with the right lender that suits your needs. We have almost 40 lenders to choose from.

Speak with one of our specialist mortgage brokers by giving us a call on 1300 889 743 or by filling in our free assessment form to find out if you qualify for a land plus construction loan.

Cheers,

Re: HSBC won’t do a construction loan - Need a house and land package

Posted: Fri Oct 18, 2019 7:01 pm
by Roxy
How does a drawdown schedule work? When is the first drawdown released? Can I ask the first payment to be released once I get approved?

Re: HSBC won’t do a construction loan - Need a house and land package

Posted: Fri Oct 18, 2019 7:14 pm
by Otto Dargan
Hi Roxy,

Drawdown or construction progress payment request is different stages of construction which once completed the bank will only then release the funds to the builder. The lender will release the first drawdown when certain requirements are met, such as when you provide them with council approved plans, insurances and building specifications unique to each stage.

The stages of construction are:
  • Clearing of the site
  • The slab or base stage
  • Frame stage
  • Lockup stage
  • Fit-out or fixing stage
  • Practical completion stage
It’s almost always a good idea to have extra funds on standby in order to keep the construction moving forward. Banks are atrociously inflexible on changes or variation that may arise.

Cheers,

Re: HSBC won’t do a construction loan - Need a house and land package

Posted: Mon Oct 21, 2019 11:08 am
by Roxy
Okay. I can put in the deposit for the land straightaway. But what documents do I need to ask my builder for in order to get approved for the construction loan?

Re: HSBC won’t do a construction loan - Need a house and land package

Posted: Mon Oct 21, 2019 12:10 pm
by Otto Dargan
Hi Roxy,

We would recommend getting pre-approved for the vacant land loan before putting in the deposit on the land.

Prior to the commencement of construction, the banks will want to see the following documents:
  • Signed building contract
  • Council approved plans
  • Construction certificate (NSW)
  • Builders insurance (certificate of currency)
  • Builders indemnity / Public Risk Insurance (Minimum insurance amount of $5 million for most lenders)
Send these documents at least 2 weeks prior to when you begin to start building to account for the bank’s processing.

Completing a build on time and on a budget can be really hard. Let one of our construction loan specialists guide you through the entire process from pre-approved to getting the keys to your house.

Give us a call on 1300 889 743 or fill in our short free assessment form to get started.
Cheers,