I will be settling an off the plan purchase in the early 2005. The contract of sale was signed December 2003.
Contract price is $281.5 and current estimates value this at ~$340k. What I would like to do is get 90% finance to cover all costs, which should be minimal and then utilise left over funds for another purchase.
Is this process any different to the normal loan/LOC/redraw application. Anything I should be aware of in the finance area.
James
Hi James,
Valuations of units in certain areas of Melbourne, Sydney and Brisbane have been drastically been reduced. Many such valuations have come in well below the purchase price (even for purchases entered into some two years ago!!).
The second possible obstacle is that the mortgage insurers are only prepared to ‘take on’ a certain number of units in a particular development.
This means that if the mortgage insurer has already consented to cover a aprticular number of units in the development they may refuse to be involved in covering the next person who wants to buy a unit in the same development.
Thirdly a lender may not be prepared to commit to a loan which is that far away.
So it is clear that buying a unit off the plan is fraught with danger and problems.
Many buyers have run into great problems because of the above.
Are the developers offering finance ?
In any event that would likely only be for a limited period of time and the low valuation situation may possibly still present a problem at the end of the vendor finance period.Sorry to give you such alarming news.
My best suggestion is to see a mortgage broker as soon as possible as, who knows, you may still be able to cancel the purchase (if your particular development is affected that is) ?
Pisces
Oh I hope Pisces hasn’t got your knickers in a knot!
As long as the time between contract for sale and settlement is over 12 months you should be fine to get 90% lend – just make sure your broker knows which lenders will lend on the current val not the purchase price!
The only other difference is that for anything over 80% you pay a Lenders Mortgage Insurance premium…
Hope for your sake val goes up some more, but you’ve done nicely already I guess [smiling]
Liz
Mortgage Lender
I note the following :
1. James is talking about current estimates. An estimate (quite possibly by an agent selling units in the particular development) isn’t the same as a valuation.
2. Even if a lender is open to lending I doubt that a valuer will be able to value the unfinished property until it is actually completed.
3. I am familiar with a few situations where the valuation came in some 20% below the purchase price which was entered into some two years earlier.
4. My point about the mortgage insurers not accepting more than a small part of a large development is a very valid concern.
5. I said : So it is clear that buying a unit off the plan is fraught with danger and problems.”
To be aware of possible problems allows one to take precautions and/or protect oneself beforehand.
Pisces
Further information for some context to the purchase.
The development is in Northcote (nth of melbourne about 7kms from CBD). Just near the old town hall for those people who know the area. It is an a development of five (5). There are all 2 br apartments. I purchased directly off the builder who needed to sell one before commencing construction.
Prior to purchasing the apartment, I commissioned a sworn valuation assigned for 1st mortgage purposes, which came in at $320k. Comparable sales in the last 3 months in Preston/Northcote areas are between $340k -390k.
I wasn’t intending to organise finance now. I have the cash for a 10% deposit based on $281.5k and additional equity elsewhere if things go pear-shaped. (current deposit is by way of a deposit bond)
Stamp Duty for the purchase will be around $2200 (land value of $100k at purchase).
Not intending to organise finance now, but looking forward to settlement and wanting to unlock equity for another purchase.
Yes, agree there are risks, especially in the new market conditions, but due diligence was quite extensive, so I was pretty confident that it was a good purchase. The extent of which will only be known at settlement.
James
The key to buying OTP is due diligence and preparing for market adjustments [risk management].
It would appear having taken this into account you have secured a very good investment – and stepping stone for ongoing investments.
As touched on, settlement is not required until after the developer receives a certificate of completion. Therefore, the current valuation seems to be a moot point at this time.
— Michael
>>I purchased directly off the builder who needed to sell one before commencing construction.<<
That is taking unfair advantage from a vendor who is in a corner, desperate to make a sale. [biggrin]
It is good to hear that it is in a small complex, James.
Pisces
Cheer up Pisces.
I thought this was normal (builders).
Yes it is the banks who only secure a % within a unit complex, say 20% to 25%. The mortgage insurers don’t put this lid on.
Liz
Mortgage Lender
Originally posted by Pisces:>>I purchased directly off the builder who needed to sell one before commencing construction.<<
That is taking unfair advantage from a vendor who is in a corner, desperate to make a sale. [biggrin]
It is good to hear that it is in a small complex, James.
Pisces
I would be interested in your opinion Pisces as to why this is taking an unfair advantage. Perhaps the builder had taken that into consideration before he commenced the project.
Well done on being at the right place James…..
________________________
Bundy made me do it…..
Liz, Rugbyfan, didn’t you see the ‘big grin at the end of the sentence ?
I was merely talking tongue in cheek.
Pisces
Pisces made a good point about the mortgage insurers only taking a limit number of apartments in any one project. There may also be problems with getting LMI depending on how many units are in the complex, but 90% lend on valuation is possible.
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Pisces & Rob, play nice… I have deleted those 2 posts… any further defamatory posts will be deleted.
Both you guys add a lot to this forum. It would be a shame to see you two banned.
Please, please refrain from saying anything to each other!
Cheers
Stu
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