What's the process like when applying for a mortgage with an untitled land?

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Duran R
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What's the process like when applying for a mortgage with an untitled land?

Postby Duran R » Thu Jun 06, 2019 8:27 pm

Hi, I’m purchasing an off the plan untitled land located in Armstrong Creek, VIC. The land is 336m2 and expected to title by May of next year. I have the contract of sale with me and I’m ready to put down a 10% deposit. But before I sign the contract, I want to know what’s the process like when applying for a mortgage with an untitled land?

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Otto Dargan
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Re: What's the process like when applying for a mortgage with an untitled land?

Postby Otto Dargan » Fri Jun 07, 2019 12:26 am

Hello Duran. Welcome to the forums.

Untitled land or unregistered land is simply land that is sold prior to council registration usually offered by property developers and is typical of new estates or new land releases. When you put down a deposit which is usually 10%, you’re entering into an off the plan purchase wherein, the developer promises to deliver a block of land before a specified date.

You can apply for a pre-approval to buy untitled land based on the assessment of your borrowing power. However, before a bank can give you an unconditional mortgage approval for vacant land they first need to order a land valuation. And the valuer can only value the land once it’s registered.

After the developer informs you that the land is ready to be titled, if you’ve already gotten a pre-approval at this point then the lender will order a valuation of the land, pending which they will provide you with unconditional approval. So, you’d want to wait until you’re less than 3 months away from the settlement to apply for a home loan as pre-approvals only last for 3 to 6 months.

Lenders have different policies on the type of properties they accept as security. They have post code restrictions that limit the LVR (loan to value ratio) you can borrow.

You should hire a solicitor or conveyancer to go over the Contract of Sale and to help you transfer the land title from the developer to you at settlement.

Give us a call on 1300 889 743 or fill in our free assessment form to find out if you qualify for a vacant land loan.

Cheers,
Otto Dargan
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Duran R
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Joined: Thu Jun 06, 2019 8:26 pm

Re: What's the process like when applying for a mortgage with an untitled land?

Postby Duran R » Fri Jun 07, 2019 12:01 pm

What’s the sunset clause? Do I really need to hire a solicitor to look at the contract?

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Otto Dargan
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Re: What's the process like when applying for a mortgage with an untitled land?

Postby Otto Dargan » Fri Jun 07, 2019 12:45 pm

Hi Duran,

It is always advisable to seek legal advice when entering into any contract especially if it’s an off the plan purchase.

When buying an untitled land, the developer is essentially making a promise to deliver a block of land before a specified date. The sunset clause effectively puts a time limit on the contract’s validity. If a settlement has not taken place by the end date included in the clause both parties are legally entitled to walk away from the contract. When that happens buyers would receive their deposit back in full.

In recent years, unscrupulous developers have intentionally delayed the project and run over the time specified in the sunset clause, so that they can terminate the contract and attempt to resell the property/land at a much higher price. The buyer would get their deposit back, however, they would have to either pay a premium for the same property or look for another property.

The NSW and VIC government have introduced legislation under which a vendor/developer cannot terminate a contract under the sunset clause without the written consent of the purchaser or by order of the court. In NSW specifically, a vendor is required to provide each purchaser with at least 28 days of notice prior to invoking the sunset clause. The vendor must provide details as to why they want to cancel the contract and provide reasons for the delay. If the buyer does not consent to the cancellation of the contract, then the vendor needs to apply for an order from the Supreme Court to proceed with the rescission.

Cheers,
Otto Dargan
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P | 1300 889 743
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Duran R
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Joined: Thu Jun 06, 2019 8:26 pm

Re: What's the process like when applying for a mortgage with an untitled land?

Postby Duran R » Fri Jun 07, 2019 1:53 pm

The developer we hired is a good reputable builder, so no worries on that end. Since buying the land last year in Feb., we’ve been saving up and reducing our debt simultaneously. What if the bank’s valuation comes below our purchase price? Will they use their valuation or our purchase price to determine the LVR?

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Otto Dargan
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Re: What's the process like when applying for a mortgage with an untitled land?

Postby Otto Dargan » Fri Jun 07, 2019 2:11 pm

Hi Duran,

Generally, banks tend to use the lesser of the purchase price or valuation when determining how much you can borrow.

It isn’t uncommon when buying off the plan or untitled land 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), lenders mortgage insurance (LMI) premium (if applicable) and final loan amount.

We can order a free upfront valuation with some of our lenders so that you can maximise the amount that you can borrow.

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

Cheers,
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts


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