Home loan for 90% complete house - Need Advice!

Any general questions you might have in regards to loans and finance.
kouli
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Joined: Wed Nov 10, 2010 8:11 pm

Home loan for 90% complete house - Need Advice!

Postby kouli » Wed Nov 10, 2010 8:37 pm

Me and my partner are looking at buying a new home.
The loan amount that we are looking at borrowing is $570,000
Based on a standard variable interest rate of 6.99% Principal and interest this equates to approximately $3800 per month. I have a corporate hire lease on my vehicle of $578.00 per month. This will expire in November 2012. This equates to $4,378 per month including the vehicle and home loan repayments combined. I earn $5,396 per month clear in my bank account. This leaves me with $1018 per month in my pocket. On top of this i have $50,000 in saving. This home that i am looking at buying it is 90% complete as the owners a going through divorce settlement. The 10% extra work to finish this home require a new fence, drive way,carpet, tiles and floorboards and other landscaping cosmetics. This is where my money is going to go to complete the home.
With all my other outgoings such as electricity, gas, water bills, rates, petrol, food,etc.. i am concerned that $1018 is not going to be enough.
I have been advised that if i change my home loan package to Interest only my repayments will only be approximately $3,200 per month + my vehicle at $578 per month this will equate to $3,778. This leaves me with $1618 per month which looks more appealing.I have an investment property which i am renting out and my repayments per month is $1300 per month with the bank at Principal and interest. I am getting $1600 per month from the tenant.I owe $166,000 and 20 years remaining to pay of the loan. In effect i will then be getting $1918 per month with the extra $300 i am getting from the tenant.In fact i am not negative gearing due to getting an additional $300 per month form the tenant.
I dont know if it is a good idea to leave my new home at Principal and interest or move it to Interest only. I do want to pay it off quicker in the future but in my current circumstances i may struggle if i keep it at P & I. Does anyone have advise on what i should do?

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Otto Dargan
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Re: Home loan for 90% complete house - Need Advice!

Postby Otto Dargan » Thu Nov 11, 2010 8:17 am

I can see there are two potential problems with the loan you are after:

  • Very few lenders will accept a partially complete property as security for a home loan.
  • You are borrowing very close to your limit, banks may not approve your loan because they need to see that you can afford the home loan at rates that are around 1.5% higher than today's interest rates just in case rates go up significantly.

So it is really a matter of seeing which lenders can approve your loan, and then looking for the best rate.

The reason why banks do not like partially complete properties is that they are very difficult to sell and the bank has no guarantee that you will complete the building. So from their point of view they are taking a risk.

There are several options we have that can improve your situation so that the banks are more likely to accept your loan:

  • Consolidate your car lease into your home loan. This would increase your borrowing capacity. We can keep the debt as a separate loan account for tax purposes.
  • Use your investment property as additional security. This gives the bank comfort that if you do default they have two properties they could sell, so they are in a better security position.
  • Possibly get quotes for the work to be completed to show that you are ready to finish the property.
  • Apply with a lender that takes a common sense view of credit, not a guidelines approach.

We've done a few like this before. Usually we talk to the selling agent and ask for a longer than normal cooling off period to allow time to get quotes, get a bank valuation and then to get the loan approved. We may also use a lender that allows us to order a valuation up front, rather than after we submit the loan, so that we can be sure the valuation is favourable.

The valuation will be critical for your loan. If the valuer does not like the property or believes that you would need a licensed builder then the lender may ask you to use a builder to complete the property. This would cost you more money, so it would be best to avoid it.
Otto Dargan
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