In particular we focus on getting the loan structure right the first time, choosing which lenders to use in the right order (yes this is important) and finally getting our clients the best deal possible.
Units on one title?
Are you looking to purchase a property with more than one unit on title or perhaps looking to build one or more additional dwellings on one block? Many lenders have restrictions for residential loans on both the number of units they will finance on one title and the LVR they will allow for this. There are also different restrictions based on whether the properties are existing or to be built.
The more units on one title the harder it is to secure a residential loan (as opposed to commercial loan). We have a few lenders who will consider up to 6 established units on one title at 80% LVR or less. For construction the maximum would be 4 on one title with an LVR below 80% see below.
Multiple units on one title (established dwellings i.e. not construction)
If your proposal has more than 6 established units one one title it is definitely going to be classed as a commercial transaction. Here is guide to assist you in working out of your property would qualify for a residential loan.
- 2 units on one title - established dwellings - up to 90% LVR with lenders mortgage insurance.
- 3 units on one title - established dwellings - up 90% LVR with lenders mortgage insurance.
- 4 units on one title - established dwellings - up to 80% LVR.
- 5 -10 units on one title - established dwellings - up to 65% LVR in metro location only ... OR ... Commercial 70%.
- 10 + units on one title - established dwellings - Commercial only with LVR case by case.
Multiple dwellings on one title (construction loans)
For residential loans most lenders will restrict the construction of multiple dwelling on one block (or on adjoining blocks) to 2 dwellings regardless of whether they will be subdivided or strata titled on completion.
We have at the time of writing access to 2 lenders who will consider the construction of 4 dwellings on one title. Please note this is not available for developers or builders, only legitimate buy and hold investors are eligible.
A maximum of 80% of land value & building contract amount would be the maximum LVR available. Please also read up about in one line valuations as this is likely to affect those seeking to minimise their equity contribution.
- 2 units on one title - construction - up to 90% LVR with lenders mortgage insurance.
- 3 units on one title - construction - up 90% LVR with lenders mortgage insurance.
- 4 units on one title - construction - up to 80% LVR (valuations are done "in one line" meaning you will likely need a bit more equity)
- 5 or 6 units on one title - construction - up to 60% LVR and strong applicant we may be able to get an exception for you but normally would be commercial finance only.
- 7 + units on one title - construction - commercial finance only.
Valuations "in one line" and "land + building cost"
One important consideration is any proposal where there is more than 2 dwellings is likely to be the valuation. Properties will be valued "in one line" as one property rather than as 3 or 4 individual properties. This means you should expect a lower valuation than if each unit were valued independently as a separately sale able security.
What if my properties are strata titled? Even if you have approval to strata title the properties at completion almost all valuers will adopt a discount on their valuation to account for the fact that this hasn't happened as yet. With a 4 dwelling valuation you would usually expect a discount in the vicinity of 25%.
The other consideration with valuations / construction loans is that lenders will adopt a maximum loan based on the sum of the land and construction value and applying their maximum ratio to that. For example say you buy land for say $1,000,000 with an old house on it (to be demolished) and then have a building contract for $1,000,000 to build 4 townhouses. You anticipate that each townhouse would be worth at least $600,000 on completion giving you a total value of $2,400,000. However you could expect the lender to adopt the value as 1) the land value "as is" (say $800,000 based on the valuers report) + 2) the $1,000,000 construction costs, giving them a total value of $1,800,000 to lend against. This is obviously well less than what the actual finished project would be worth. With a maximum LVR of 80% this would mean the maximum loan would be $1,440,000. The end result is a true LVR of about 60%.
If you are an investor with a buy or build to hold strategy I'd love to hear from you to see if we can help with financing your property or project. Please call us or fill in the contact us enquiry form.