You might have miscalculated the total funds required to build your home while the construction work started.
If you were not able to predict the cost down to the last brick and the final coat of paint, you could be running into problems.
If your dream home exceeds your budget during the construction, you can still get yourself a partially built home loan to finish the funds you require.
However, this falls under unconventional mortgage type, and there are very few lenders willing to take on the applications.
How do lenders view half-built properties?
Majority of the lenders in Australia won’t accept a partially built home as security for a mortgage.
Generally, you must apply for the loan either before you start construction or when the building is completed.
Even if you only need a small amount to finish the house, most lenders will not provide any finance whatsoever on a partially completed house.
It opens the lender to a range of legal issues if they have the security of a partially completed build.
If you have a property, it should be possible to borrow additional funding; however lenders may view it as a risk by the fact that your initial estimates were inaccurate.
Your original lender might be able to help, but they may likely be wary of advancing any further funds when there could be further additional unforeseen problems ahead.
For partially complete homes, brokers may charge a brokerage fee as there is significantly more work involved than there is for a standard home loan.
If there is a primary mortgage on the property, you can still get a second mortgage as long as there is sufficient equity in the property.
Some lenders will want to persuade you to refinance to be the first mortgage.
How can I increase chances to get approved?
Here is what you can do to grow your appeal as a borrower for a half-built home loan:
- Work on improving your credit score
- Look at your credit file and remove any listings that are not authentic
- Try to get at least save 20% deposit, so you can avoid paying LMI
- It is best if you pay off any new debts
- Cancel all your unused credit cards to improve your borrowing power
- Carefully break down the funds needed by covering every item and the labour required
- Engage a quantity surveyor to determine the completion costs of the build accurately
- Make sure you have a decent amount of equity
As an owner builder for a partially completed home loan, you must submit the following to the lender:
- The full address of the property
- Five photos of the interior only
- A list of estimate pricing of what the funds will be spent on
Before proceeding with a partially built home loan, lenders would want to know:
- Who was the original funder?
- Why have you become short of funds?
- Who is your quantity surveyor, and who is he accredited with?
- What stage in construction?
- Why was it not completed?
- Do you have a contract with a builder?
- How much will you need to build it?
If you have genuine answers that could interest the lender to provide you with the funds, then the loan process will move forward.
Are interest rates higher on half-built home loans?
We can link you to a lender with a competitive interest rate that best suits your needs for a half-built home loan.
The interest rate depends on the stage of the construction.
Specialist lenders offer interest rates will be higher than the standard construction loan due to the risk associated.
Is there any location or property type restrictions?
Yes, most lenders would prefer to lend to property within CAT 1 (major capital cities and large towns) or CAT 2 (medium towns) categories.
Fortunately, we have access to lenders on our panel who will allow half-built property loans at all locations.
You can get a partially completed home loan for:
- Residential houses
- Apartment buildings
- Commercial and Industrial
What are other options?
If you are unable to qualify for a construction loan for a partially built house, then you could select one of the following options:
Extending the renovation loan
Speak to your bank about your incomplete home building project and see if they’re willing to extend your renovation loan limit.
Some banks will be willing to help you out if you’ve been faithfully repaying the renovation loan as work progressed.
Using a guarantor
Alternatively, lenders are willing to disburse a much bigger loan if you have a guarantor.
With the extra funds, you may then focus on finishing up your renovation.
You can get an owner-builder loan, but it’s mostly challenging to secure because of the unfinished house and possible high loan amount.
If you want to avoid applying for an owner-builder loan, then there is potentially the option to cash out.
The council should be approving the construction before work even commences. So, If you’re an owner-builder, you’ll need to apply for Development Approval (DA) with the local council.
Note that if you sell the property upon completion of construction then you’ll likely have to pay certain clawback fees.
Release equity based on land value
You can use your land equity to get a construction loan. For this, you need to do a valuation of the land (at your own cost) and mention how long ago you purchased it to the lender.
If you have a valuation already, lenders may still require another valuation depending on how recently it was done.
Banks use the valuation figure of the land value plus the cost of construction as the total purchase value.
This means that the funds you can borrow depends a lot on the land valuation.
Let’s get started on completing your dream home!
If you need extra funds during construction, we can help you out after assessing your scenario and needs.
To talk to a mortgage broker that specialises in half-built home loan, please enquire online or call us on 1300 889 743.