Are you in the process of buying a home and the land that it sits on at the same time? Many people will try to take this approach if they've found a great location for their new project and want to get started with the construction as soon as possible. Yet before you go too far down this road, make certain that your lender or financial institution will approve you for this particular approach. What do you need to be aware of?
How These Packages Work
There's nothing inherently new about a house and land package combination. This type of approach allows someone like yourself to have two different but simultaneous contracts. The first would be with the owner of the land and the second would be with the builder of the property. Bear in mind that each of these individual contracts is contingent on the performance of the other and a lending institution would be approached to provide an appropriate loan to cover both building and land contracts.
Usually, the amount of any loan is in the region of 80% of the combined total. This is triggered when settlement is made on the land and a mortgage is drawn up based on title to that land. Construction would begin fairly soon thereafter and payments would be made to the builder for work delivered by drawing down on the master loan. The final payment would be made when the dwelling was complete.
Where Complications Arise
As always, a financier is going to do their own due diligence to determine not only the value of the land, but the expected value when it is improved by the dwelling. However, in recent times, certain valuations have been determined to be at an elevated risk and this could lead to a refusal to finance by the lending entity.
More often than not, problems arise in more complicated situations, such as where a development is to include a row of townhomes based on the same foundation, with individual separations or party walls. As there may be several entities involved and a number of authorisations may need to be attained before the development may complete, some lenders think that the risk profile is too high.
If you want to seek financing on a house and land package, it's important that you have support and advice from conveyancing services and other real estate professionals.