Display homes help those who are building a new home to visualise what the property will look like upon completion. However, what if you want to purchase a display home to live in?
Financing a display home isn’t easy! Many banks do not accept display homes as security for a mortgage. Read on to find out how to finance your investment.
How much can you borrow?
- First home buyer: 95% loan are considered if there is no leaseback agreement.
- Investor: 90% of the property value on a case by case basis where the leaseback is up to 2 years or 80% for leaseback periods that are over 2 years.
- Guarantor loans: 105% of the property value subject to the conditions of the leaseback agreement.
- Low doc: N/A.
- Discounts: Competitive professional package and basic loan discounts are available.
You may be able to borrow up to 100% of the purchase price with a guarantor home loan!
Criteria for display home loans can be quite tricky with many factors to take into account. As a general rule the more restrictive the terms of the leaseback agreement and the less likely it is that a standard tenant would want to live in the property then the less available finance will be.
Please call us on 1300 889 743 or enquire online and one of our mortgage brokers will help to get your loan approved.
What are the approval criteria?
The approval criteria that lenders use for display homes is focused on the leaseback agreement between you as the investor and the builder as the tenant. The following are typical approval criteria:
- Most lenders: Do not consider Display homes unless the leaseback to the builder has been completed and they can now be leased to any tenant you choose.
- 80% LVR loans: The lenders that lend to 75% or 80% of the value of the property require that the term of the lease is for no more than two years. Rental income is assessed at normal market rates.
- 90% LVR loans: This can only be considered if you don’t need the rent income to show that you can afford the loan and the lease has less than 6 months left to run.
- Homes in a display village: If your investment is inside an exhibition home village then please contact us to discuss the terms of the leaseback arrangement and the expected life of the village. These can be considered if there is a bank guarantee from the builder or if your income is such that you can prove that you can afford the loan without the need to take rent income from this property into account.
Why are the banks so conservative?
There are a number of reasons why lenders are very conservative when using an exhibition home as security:
- The terms of the leaseback agreement may be in the builder’s favour.
- The length of the lease may be quite long, reducing the saleability of the property.
- The rental agreement is often for above market rents, which are not sustainable.
- If the house is inside a display home village then it may be more difficult to find another tenant if the builder cancels the lease.
If you are considering buying a display home then please discuss the terms of the lease with your solicitor. In particular discuss the possibility of the builder defaulting on the lease and the options that you would have in this event.
For help with applying for a loan please call us on 1300 889 743 or enquire online and our expert mortgage brokers will get back to you.
What is a display home?
Display home villages are one of the most common ways for Australians to view a variety of home designs & house plans all in one spot.
They allow potential owner builders to visualise what their house will look like when completed and make possible alterations to the existing plan to suit their individual needs.
Many large villages such as HomeWorld have houses on show from several major builders, whereas larger builders such as Metricon or AV Jennings may have their own centres.
Advantages of buying a display home
There are many advantages of buying a display home and it is very common for most newly built homes to be sold.
- Homes are well maintained and as they do not have people living in them on a daily basis, they are better looked after than other existing homes.
- The houses may have new features or additional extras that other properties do not have. They may have installed to demonstrate to possible buyers, what the higher end houses with more expensive building materials look like.
- Depending on how old the home is, it may be sold at a reduced rate. Most builders want to sell the homes as soon as possible to free up the capital and continue to fund other house and land projects.
- If you were looking to build the same house on vacant land, it may end up costing more and being a more stressful process. With your dream home already built, all you have to do is move in!
- The rental return during the leaseback period may be higher than the normal market rent.
Disadvantages of buying a display home
Despite the positive aspects, buying a display home still requires some careful consideration.
- Building on your own land means that you can choose to live in an area that is an estate. Most display homes are built in villages. If the location does not suit you, buying a display home or living in a display village, may not be for you.
- As display homes are essential built for demonstration purposes, it may not have all the living features you require or may not be built to a good standard, especially if the builders were trying to meet a deadline.
- Most display homes are used for many years before being sold, so you are still buying a used home.
Companies that have display homes
A variety of companies nationwide build display homes. These include:
- Hotondo Homes
- Binet Homes
- AV Jennings
- Urbayne Homes
- Asgard Homes
- G.J. Gardner
Do you need help from an expert?
Our mortgage brokers are specialists in helping people to buy a display home. If you are having trouble financing your investment then please call us on 1300 889 743 or enquire online and one of our brokers will call you to discuss your options.