House and Land Construction Home Loan

For house & land packages, lenders are pretty comfortable as they can see the plans and contracts prior to approval. They also control the funds by making progress payments to the builder as milestones are met.

On construction loans lenders must estimate the completed value of the property (TOC), from which they base the security amount for lending. Typically this is done by adding together the value of the land and the price of the fixed price builders contract. For example, if the land is $200,000 and the building contract is $200,000, then the TOC is $400,000, normally the land and the plans are assessed by an independent valuer appointed by the lender. It is from this figure that the lender calculates LVR. It’s important to understand that variations to contract and items not listed in the contract, eg driveways, window coverings and floor coverings are not normally included in the assessment of the value of the property eg: in the above example, if the building contract did not include floor coverings, window coverings and driveways the customer should have an extra $40,000 approx to cover such items. Lenders usually require an inspection and formal confirmation of completion of the construction before they release the final progress payment.

Off the plan is more common with apartments than houses although some developers will build houses off the plan in order to have suitable stock in place for when the general release begins. Off the plan developments usually require a 10% deposit and this may be covered by a deposit bond. Although be very careful as strict eligibility conditions apply and so make sure that you can get your deposit bond before committing to a contract.