We are trying to finance a construction project for a duplex. we have been dealing through a mortgage broker and have been very happy in the past with the service. We had bank pre-approval for the deal over 12 months ago, but had problems with council and then a builder (that's another story) and eventually got to the point of applying for the finance just as the pre-approval ran out!!!
Since late November we have been trying to get the finance approval again. THis has been an extremely slow and frustrating process. By early January we FINALLY had the construction valued by the bank and were happy with the valuation and everything looked ready to go. BUT, then came the mortgage insurers! They insisted on a revaluation as a "one-line" valuation (had never heard of this before) claiming that there was no guarantee that we would actually do the strata titling at the end of the project. This is despite including a quote for having this done and also the DA approval including the strata titling. Further, why would we not do this when the cost is no more than $10000. It adds so much to the value of the property (the bank of course having to revalue the finished project is a clear incentive to have the strata done) and the application stating the intention to sell the second unit with us living in one. And of course the MI will not state what proof they would require that would demonstrate definitively our intention to do the strata titling at the end of the project. This seems to me to be an excuse not to finance the project unless we come up with the additional $300000 which the project was subsequently undervalued by.
Any suggestions from anyone about (a) what the MI might accept as proof; (b) what else to do (the mortgage broker says that there is someone else to try for the loan, but seems loath to proceed with the second application for some reason. My attitude is that nothing is lost by applying to the second bank at this stage as we've got nothing to lose. If we don't get the approval we'll be doing nothing for sometime.
Getting information from banks suddenly seems like getting blood from a stone. Is this the same for everyone? I can't believe that here we are in February still mucking around with the bank since November.
Any suggestions greatly appreciated. BTW we are doing lodoc lending and bank is CBA. We have been banking with them forever, and have no problem with our credit.
MI have really tightened up lately, especially with Low Doc loans.
If you are not using a company, then maybe st g would be a better option – they self insure.
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
Regretfuly the pre-approval was probably not worth the paper it was written so the fact that it ran out was neither here nor there.
Construction funding is getting harder to obtain especially on lodoc and all lenders and mortgage insurers have tightened up.
To be honest CBA have probably tightened more than most over the last 3 months so the additional requirements are not unexpected.
Half the battle is knowing what the mortgage insurers will accept rather than the Bank and with somone like CBA you have no chance of finding out.
Richard Taylor | Australia's leading private lender
Thank you both for comments above. We've tried St G at your suggestion Terryw and they're response is also that they will now value as "one line". The gist is that there is no guarantee that the strata titling will ever be done. And yet I cannot understand why anyone would NOT do it, when the cost is so minimal compared to the total increased value of the development.
So this seems to be the new direction for duplex development.
Seems that now is perfect time given cost of financing, but will not be able to proceed. Very frustrating to be stopped by this when we have no problem with eligibility otherwise.
Any suggestions on how to acuiqre ~$275000 via alternative means, besides a loan shark of course.
Thanks again
Can't help with advice but can tell you that some banks have become painfully slow and frustrating to deal with – at least since November to now.
Would need actual purchase and construction figures to make a comment of to whom you could approach to consider it.
Richard Taylor | Australia's leading private lender
Hi propertylearning,
Not able to assist in answering this one for you, but would be interested to know why you think everyone would automatically strata any duplex they build?
We plan on doing a duplex development in the near future, and have no intention of adding the expense of strata titling, since we intend keeping both properties and renting them out. If down the track we want to sell, then we would (most probably) strata.
I've also come across plenty of duplex and dual occ properties where no subdivision/strata titling has taken place……
craigsed.
Try Bank West, I have found them to be fairly flexible, while most of the majors (Westpac and CBA) are tightening their lending criteria.
Try Bank West, I have found them to be fairly flexible, while most of the majors (Westpac and CBA) are tightening their lending criteria. I have also found that “banking with them forever” is currently making no difference to the way the big banks are looking after clients…
Bank West will not do a lodoc construction deal in the manner which is required by the propertylearning.
Richard Taylor | Australia's leading private lender
Hi Propertylearning,
As Richard suggested, if post some figures and also where the property is, it would be far easier to help you.
Regards
AlistairHi all,
Thank you for suggestions/comments.
Craigsed, I do apologise if I made it sound as though I knew all about doing a duplex development. Of course I don't and that's why I sought assistance here. And, yes naturally there are other options including dual occupancies, etc.
My reasoning at making such a (presumptious) opinionated statment was that in fact for the additional equity we would gain from doing the strata titling cost of only around $10000 seems insignificant and would be worth doing. In our case the difference has been a bank valuation of 34% higher when they valued the project as being strata titled vs the second valuation as a one-line valuation, ie not strata titled – in our case a difference in valuation of $300000. So a cost of $10000 for a gain of $300000 in additional value seemed quite logical to me! I was really only referring to our own situation and didn't mean to imply that this would be the same for every situation. Perhaps I should have said "Why would anyone not do it in this situation". Our biggest frustration was that the bank would not accept the evidence provided that we would strata-title.
Of course, I agree if you don't wish to access this additional equity then you can easily not do the strata titling until/if you wish to sell either or both units. Saves a lot of other costs such as double rates, etc.
Anyway, now that I understand that the project should be being considered from a construction perspective rather than the end product perspective, whether or not it is stratatitled apparenlty becomes irrelevant until the point where you wish to extract equity or sell.
When/if we ever get this financed, I'll certainly let everyone know how it was managed.
Propertylearning
Bite the bullet and just get a commercial construction loan.
It is, after all, a commercial project. You are setting out to build a dwelling for immediate sale and profit.
Even though it is only a small scale (there is no smaller project than build one structure and sell it), it will be a much easier way to indicate your intentions to the bank and to get the correct value assigned to the properties.
Tim
Regretfully lodoc commercial to a 90% GR loan is not available.
Richard Taylor | Australia's leading private lender
Richard,
It sure is.
My business partner arranged 100% funding for a commercial project only weeks ago.
Most commercial facilities are not considered on a servicibility basis if there is a clear Xit Strategy in place. You just need to have room to cap interest and a revolving GST facility built in.
Totally possible.
You just need to know where to look.
Really on total lodoc.
Max we can do on a standalone basis is 80% of GR.
i get 3/4 deals like this a week so many we should chat. I have a nice 55 unit site now where clients want 90% of Gross Realisation on Lodoc at $5.8M. Funding will be 125% of cost but there is a good margin in the deal.
What details do you need to get an indicative approval.
Richard Taylor | Australia's leading private lender
Really on total lodoc.
Max we can do on a standalone basis is 80% of GR.
i get 3/4 deals like this a week so many we should chat. I have a nice 55 unit site now where clients want 90% of Gross Realisation on Lodoc at $5.8M. Funding will be 125% of cost but there is a good margin in the deal.
What details do you need to get an indicative approval.
Richard Taylor | Australia's leading private lender
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