Just short of a 20% deposit for a new mortgage - Would lender consider appreciation of land value?

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  TheBilly on 18/01/2019 - 14:42

  +1

  How short are you? and how long will it take to save? and do you have to settle around July - September? I've never heard of a developer being on time, so you might have a bit more time to save. Also I don't think the bank will consider the land value in their assessment as it is not yours yet so you cannot use the equity on something you don't own yet - otherwise everyone would just be out there negotiating cheap prices and getting the banks to finance with no down payment themselves. Land developers in Sydney are offering 10% to 20% discounts because they cannot sell, so I doubt the developer is getting the $50k more that they have listed it for, albeit Melbourne could be a bit different right now.

  • 

    websterp on 18/01/2019 - 15:41

    Worst case we will be 20K short to make the 20% as the house and land package is sitting at approx 900K mark. The developer keeps on sending regular updates stating that they are on track and I've made few trips there and I could see work progressing. So they may be delayed but can't be off by a month or two.

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  Seraphin7 on 18/01/2019 - 14:46

  +3

  You are correct in stating that under 20% will cost you on LMI, but this alone is not a deal breaker.

  Where you may run into issues is if the lender determines that the land has, in fact, depreciated. Without knowing the details of what you have purchased, this is only a consideration, but under the current circumstances of both falling property values and tightened lending criteria it is a possibility.

  The fact the land is being marketed by the developer for $50k more than you paid is interesting, but does not mean it is worth that much more in the eyes of your lender. You will need to be prepared to put all of this to your lender (with supporting evidence) as in the absence of any additional information, they will likely value it on what you paid for it in a best case scenario.

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  djkelly69 on 18/01/2019 - 14:58

  +1

  Your post is a bit confusing - you state you paid 10% deposit and have almost 20% of the amount owing to the developer, but then you also said you haven't yet saved over 20% deposit including the initial deposit.

  If you have paid 10% deposit and also have almost 20% of the balance due, you are fine. You only need to contribute 20% of the total, which includes any deposit you paid.

  If not, theoretically the bank's valuation of the property will be based on its value at the time of valuation, but the reality is they just accept the contract price as the value 99% of the time. Might need to talk to a broker to see if they know of any lenders who will allow valuations over contract price (brokers have a name for this but I forget what it is called). But I would not be hanging my hat on this.

  • 

    websterp on 18/01/2019 - 15:42

    Sorry I meant that we have paid 10% of the land value to the developer and when I was talking about 20% deposit that is from the total value of the house+land

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      djkelly69 on 18/01/2019 - 16:13

      Talk to a broker, but the bank may only require you to provide 20% of the land price at this stage (assuming you have split land and build contracts).

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  HighAndDry on 18/01/2019 - 15:13

  +1

  That's not how that'll work. To use an example, say the land was bought at $100,000 and is now worth $110,000.

  The bank wouldn't count the extra $10,000 in appreciation as your savings. However they may use the current valuation in deciding how much you can loan, so instead of lending you 80% of the $100,000 purchase price, they might lend you 80% of the current market value of $110,000.

  So originally: $10,000 deposit, $80,000 (80% x $100k) loan, you need $10,000 in extra savings.

  Now, potentially: $10,000 in deposit, $88,000 (80% x $110k) loan, you only need $2,000 in extra savings.

  BUT keep in mind this is very unlikely - bank valuations tend to be very conservative and they tend to max out at the purchase price of the property you're buying.

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  cjbowden on 18/01/2019 - 15:28

  +1

  At the time you are seeking the loan, the balance of power will certainly feel in the lender's favour, but don't forget it is still a competitive market, and lending you money is how they make money. Yes the rules are stricter, but that is to weed out the crazy lending they have been doing in the past.

  Whilst my story is from 18 years ago, when I applied for my first mortgage I had limited savings, and was planning to build like you. I negotiated a waiver on the LMI by demonstrating our capability to save. Given we had months before the land was titled and ready to build, the lender said "If you can show that you can save $1000 every month for the next 8 months, we will waive the requirement for LMI".

  Certainly worth asking for. In today's modern world where you may be applying online, my advice is don't. Talk to a real person a the bank. Ask for their help. Ask for their advice.

  Best of luck.

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  Hessian Sack on 18/01/2019 - 15:55

  +2

  Also worth noting - LMI is a sliding scale. You’ll pay way less LMI if you have 18% than if you had 8% (say)

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  yoonibear on 18/01/2019 - 16:03

  I'd recommend having a talk with a mortgage broker. Worst case scenario, you'll pay LMI but like Hessian Sack said, it's lesser if you have 18% than say 8%.

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  Meho2026 on 18/01/2019 - 16:59

  +1

  What you need to watch out for is that when you buy the land from the developer there is usually a requirement to build on the land within a specific time frame. It is always written in the contract, part of that clause may state that if you fail to build within the time frame, you have to sell the land back to the developer, some contracts will specify that in this circumstance, the sale price is 10% less than you paid for the land.

  That is important in the lender placing a value on your land for borrowing.

  The 10% you paid the developer means you will only seek to borrow 90% of the land cost which could even all of that out.

  I know someone who was in a similar situation recently, they got knocked bank from 2 banks because they were applying to borrow only for the land. A mortgage broker managed to get them a deal for a land and construction loan through BankWest, the interest rate was above average though.

  Right now, lenders are examining 3 months of your spending to determine your ability to service a loan and the amount they will lend you.
  You have enough time to stock pile a cash reserve, then in the 3 months before your application, minimise your spending on paper and spend that cash reserve. That will help you borrow more.

  If you're worried, take whatever deal a mortgage broker can get you, then when the lending environment improves in a couple of years, refinance to a better deal.

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  mortgagebroker on 18/01/2019 - 22:09

  If the contract is older than 12 months, which you say it is, then yes, some banks will do this.
  Purchase price does not mean it will value at that price though.

  My suggestion would be NAB.
  Talk to a mortgage broker sooner rather than later.

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  deveshwar0 on 20/01/2019 - 00:12

  This is possible. I work for a bank. If the land contract is over 12 months old, our bank will lend on today's value.
  PM me if you wish to discuss further.
  Good luck!