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Off The Plan Home Loan

Note: There have been significant changes to off the plan loan policy so please read below about when to apply for finance.

Many investors choose to put down a deposit on a unit, duplex or townhouse before a single brick has even been laid.

These ‘off the plan’ purchases are a popular choice because the investor will often get a significant discount below the market value and the property may appreciate in value before settlement occurs.

How much can you borrow?

  • First home buyer: 95% of the property value (restrictions apply) or up to 105% with a guarantor.
  • Investor: 95% of the property value.
  • 100% loans: Available with some of our lenders if you have a guarantor.
  • Low doc: 80% of the property value.
  • Discounts: Competitive professional package and basic loan discounts are available.

Please call us on 1300 889 743 or complete our free assessment form and one of our mortgage brokers will help you to get your mortgage approved.

Don’t forget to read our tips on buying off the plan!

When can I apply for my mortgage?

Most lenders can issue an indicative approval at the time you sign the contract.

If your situation has remained relatively unchanged by the time settlement comes around, you’ll have a better chance of getting unconditional approval.

However, if your situation or the lending criteria has changed, you risk being declined, default on the building contract and possibly lose your deposit.

The key factor is how long until the settlement date.

More than 18 months until settlement?

You cannot apply for your mortgage if settlement is over 18 months away

3-18 months until settlement?

Previously, one of the lenders on our panel could issue a formal approval with less than 18 months until settlement.

Unfortunately, this option is no longer available.

Less than 3 months until settlement?

When the building is close to completion, you can apply for formal approval with most lenders.

Some lenders will require the building to be complete before they order a bank valuation.

The lender will ask for a certificate of occupancy prior to settlement, which is typically issued by the developer two weeks before the settlement date.

Valuation or purchase price?

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

However, with an off the plan purchase it isn’t uncommon 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.

Can I get multiple valuations?

Some people choose to get valuations from multiple lenders and then apply with the lender that has the highest valuation.

This can allow them to borrow more money or reduce the LMI premium they would pay.

In theory, this works just fine, but in practice most lenders require you to apply for a loan before they will do a valuation.

If you apply with multiple lenders then you are almost certain to fail the credit score of the lenders due to having too many enquiries on your file.

However, some lenders can allow you to order a valuation prior to submitting a loan application.

Call us on 1300 889 743 or complete our free assessment form and we can help you to order valuations prior to applying for a loan so that you can maximise the amount that you can borrow.

Why are the banks so conservative?

Banks tend to be more conservative with off the plan sales because, in some cases, properties are sold for more than they’re worth and the bank valuers have failed to notice the discrepancy.

Although you may make a small fortune from your investment, the bank is only concerned about their risk.

As a result, many banks tend to limit their mortgage loans to 80% of the property value.

By using a mortgage broker, you can find a lender that is willing to take a common sense approach to your off the plan purchase.

Am I paying too much for my property?

We know some people who’ve been sold overpriced off the plan properties by sophisticated marketing companies.

Whilst we cannot give you investment advice, we strongly recommend that you do your own research into the location, the reputation of the developer and the value of the property before you sign the contract of sale.

In particular, you should look at comparable properties that have been sold in the last six months that are not in the same development that you’re buying in.

You can refer to our how to value a property page for more information.

Other risks with buying off the plan

The market could decline

Because there’s such a delay between starting construction and actually completing your property, there’s the risk that the market goes down.

As a result, the valuation may not come in undervalue by the time settlement rolls around.

You’ve already agreed to the purchase price in the Contract of Sale so you’ll need to come up with a bigger deposit.

We’ve seen this happen time and time again when markets start reaching their peak and there are development projects just about everywhere.

Foreign investors can suffer from policy changes

In recent years, the Australian Government has been pushed politically to prohibit foreign investment in real estate.

Recently, foreign buyers who signed an off the plan contract 12-18 months may no longer qualify for a home loan at the time of settlement. That’s just how quickly lending policies can change!

The good news? Sunset clauses have changed

Since November 2015, there have been significant changes to sunset clauses in New South Wales that you need to be aware of!

A sunset clause allows the seller (vendor) or you as the buyer to effectively cancel the off the plan contract if the property hasn’t been completed by a specific date.

The sunset date is chosen by the vendor and is usually set for 12 months ahead of the likely project completion date.

Although it was designed to benefit both parties, there was increasing concern by the NSW Office of Fair Trading that projects were being deliberately delayed to turn a bigger profit.

When the contruction passed the sunset date, there were reports of contracts being rescinded and then sold shortly after for a higher price.

Luckily, the NSW Government responded with an amendment to the Conveyancing Act 1919 (NSW) and now requires the developer to give 28 days’ written notice of a recission of a contract.

If you don’t agree to the recission or do not respond to the notice, the developer will have to obtain an order from the Supreme Court to proceed.

The Supreme Court will take into account several factors such as whether the developer or vendor acted in good faith, the reason for the delay and whether the property has in fact increased in value.

It basically makes it harder for an off the plan developer to back out of a contract and take advantage of buyers. It’s a win for both homebuyers and investors.

Still want to buy off the plan?

Here are some golden tips:

  • Save as much as you can between signing the contract and settlement.
  • Before signing the contract, consider asking your parents if they can act as guarantor on your mortgage if you’re unable to come up with a larger deposit at settlement, if circumstances demand.
  • Make sure you’re up-to-date with your financials for the purposes of verifying your income at settlement, in paricular when it comes to your tax obligations as a self-employed applicant.
  • Pay your mobile phone bills, rent and other debt facilities on time to avoid getting black marks on your credit file and potentially stopping you from borrowing.

Benefits of buying an existing property

The biggest benefits is avoiding the risk of the market going and having to provide a larger deposit.

That’s because the valuation on an existing property is done at the time of buying the property, not in several months time after you’ve paid a deposit.

It can be difficult to find the right property at the right price in a seller’s market but it usually just means spending a bit more time searching.

Best of all, it’s common to get a much better property at a more competitive price than buying an off the plan property.

Note: This shouldn’t be considered as investment advice. Predicting property prices is fraught with speculation and heresay. You should take into account your own financial situation and seek other professional advice before making an investment decision.

Still need an off the plan mortgage?

Do you need help to get your home loan approved?

Please call us on 1300 889 743 or fill in our free assessment form and one of our mortgage brokers will help you to choose a suitable lender and loan product.

  • Riley

    By when the repayments for off the plan loan gets started? I’ve already signed the loan docs for a loan application in Westpac however the title is yet to be registered and the registration is expected to be completed only after a couple of months.

  • Hi Riley,

    The repayments will start only once the settlement of the loan is completed, in chosen periods such as monthly, fortnightly or weekly. The settlement will be completed once the title gets registered and the loan documents will be certified, also the lender will ask for a certificate of occupancy before the settlement. Usually, the certificate is issued by the developer only 2 weeks prior to the settlement.

  • audrey

    I can’t provide my full financials so I might have to go low doc with this. I do have a high income though and not many current commitments so my borrowing power should be okay. Can your brokers help?

  • Hello audrey,

    Yes, we can definitely look into your application and help you to choose a suitable lender and loan product. If we can’t help then we can still point you towards someone else who may be able to. Please call 1300 889 743 to discuss this with one of our expert mortgage brokers.

  • bella

    Is it more expensive if I want to apply with a non-bank lender to finance an off the plan purchase?

  • Hey bella,

    This is not necessarily the case. Even after with these policy changes announced by APRA, there isn’t normally a large difference in the interest rates offered by banks as opposed to non-bank lenders. In fact, a non-ADI can sometimes offer an overall investment loan package that’s a lot more competitive than anything the banks can do.

  • Jhen

    Hi! I am a bit confused about the 10% downpayment in getting an off the plan house. Say, I got approved $550K by the bank and I am eyeing for an off the plan house for $550K. I had it reserved then after 5days time frame I need to give 10% deposit. Where will I get that deposit? From my own pocket or from the bank’s money that they’ll lend me? Coz If I get it out from my pocket It’ll be from my savings. And how on earth I’ll get bank’s approval later on to pay off the rest at the time of settlement If I touched my savings already? I hope I make sense. I am just really confused about this process. Thanks!

  • Hi Jhen,
    Normally people who buy off the plan have a large deposit and use their cash to make the 10% down payment.
    However if you’re borrowing 100% with a guarantor loan https://www.homeloanexperts.com.au/guarantor-home-loans then you can use a deposit bond instead of cash to secure the property https://www.homeloanexperts.com.au/mortgage-calculators/deposit-bond-quote-calculator/

  • Vanessa Hood

    Hello, we have a few months before our off the plan townhouse is due to settle. We refinanced our home loan and used equity in our home to pay the deposit and costs over a year ago and it has been stressful enough waiting for it to be built! now it is about 70% complete (the whole complex) so I know about April it should be ready to settle. Problem is, my husband just lost his job…. the loan is 99% in my name and only 1% in his name due to my higher income but we are unsure if this will bring us unstuck. We have $80000 at stake to lose. My husband is working casually and getting good $$ but we know lenders don’t like this. Beside him getting another permanent job pronto, what else should we do? Our own home has increased in value in this time as we have continued to make improvements. Thanks, Vanessa

  • Hi Vanessa,
    If your income is enough to service the debts then you will be ok. However if we need his income then casual will be a problem with most lenders. It would depend on what type of role he is in and if he is working permanent casual with regular hours or if he is working irregular hours.
    Irregular hours are a problem as the lender cannot determine his income. We can still work with an irregular income if he is 3 months in his job.
    Please call us on 1300 889 743 and ask for a casual income expert
    You might also find this page useful https://www.homeloanexperts.com.au/unusual-employment-loans/casual-employment-home-loans/

  • Hema Latha

    Is it possible to get an unconditional approval from the bank, When the house is at lock up stage?. I don’t want to pay my deposit and the valuation to be low after the house is completed.

  • Hi Hema,
    Likely yes this would be ok. If there is less than 3 months to completion this should be ok

  • Hema Latha

    Thank you that gives us a piece of mind