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  1. #1
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    Default Questions bout building a new house

    I have no idea how it all works so I have a few questions.

    If you already gave a mortgage and you're looking for a place to knock down and rebuild, do you have to pay both mortgages until the second house is built? And do you have to pay both until the first one sells?

    When applying for a second mortgage do the banks take in to consideration the equity in your first place?

    If anyone can give me a step by step guide about how it all works that would be great.

    Thanks

  2. #2
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    Yes u need to pay both although the second one u only pay what money has been taken out ont he loan and we got interest only on ours but only for 12 months till the house is built.... Although if u r buying a block with a pre existing house then knocking down I would think that's almost 3 mortgages as u would be paying mortgage 1, the second plus the building finance. Although the second and building finance would be the one loan. Then yes u need to pay the first till it sells

    And yes they do take into a count ur equity. From ur first home
    Last edited by grooviechic35; 22-02-2014 at 22:21.

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    You will need to pay both but if you have accumulated extra repayments on loan one some might be able to come out of this. And construction loan will be interest only while building

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    Oh my goodness I just realised I missed the 'a' on about in my title! Gah!! That's a pet hate of mine! I hope it didn't turn people off answering

    Thanks for the replies. So there's a construction loan that you can get for building a new house? It all seems so expensive, I have no idea how people afford it!

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    Lol we r at the beginning of building just doing finance now... We had a vacant block so made it cheaper. But when it gets towards the end we need to pay rent plus mortgage.... So hopefully we can move in with family for the last month or so to ease the financial burden

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    Sorry don't think it is actually called a construction loan but in a nutshell,

    Say you buy the house and property for $200 000, you will then have a loan for say $180 000 with deposit which I'm sure you can pay interest only.

    You will then need to present the plans and quotes for what you are planning on doing I.e knockdown and re build to the bank and roughly what you need to borrow they will then work out if you can borrow this amount and what equity you have in property no1. They will then get a valuer in to value property 1 and the new property taking into account your plans and what the finished value will be.

    The bank will then say yay or nay to the funds after taking into account equity on both properties including finished value of oroperty too. Say it might have a finished value of $400 000 meaning you could borrow up to 95% of this value to fund your renos.

    Then once building starts you will do progress payments to the builders so might be demo, slab etc and they will have said how much at each payment. While this is happening loan will be interest only although with most loans you can pay extra and you only pay for what has been paid so far
    So initial 180 000 then first payment may be 20k so then home loan balance will be $200 000 to pay interest on until it increases at next payment.

    I hope this makes sense sorry it's so long have just gone through this ourselves with out extension

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  8. #7
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    Quote Originally Posted by Mummy12 View Post
    Sorry don't think it is actually called a construction loan but in a nutshell,

    Say you buy the house and property for $200 000, you will then have a loan for say $180 000 with deposit which I'm sure you can pay interest only.

    You will then need to present the plans and quotes for what you are planning on doing I.e knockdown and re build to the bank and roughly what you need to borrow they will then work out if you can borrow this amount and what equity you have in property no1. They will then get a valuer in to value property 1 and the new property taking into account your plans and what the finished value will be.

    The bank will then say yay or nay to the funds after taking into account equity on both properties including finished value of oroperty too. Say it might have a finished value of $400 000 meaning you could borrow up to 95% of this value to fund your renos.

    Then once building starts you will do progress payments to the builders so might be demo, slab etc and they will have said how much at each payment. While this is happening loan will be interest only although with most loans you can pay extra and you only pay for what has been paid so far
    So initial 180 000 then first payment may be 20k so then home loan balance will be $200 000 to pay interest on until it increases at next payment.

    I hope this makes sense sorry it's so long have just gone through this ourselves with out extension
    That's pretty much correct the one thing u have to know though is the value of the second house prior to building will not be more then purchase price of land + building cost.... So say ur land was $70k and it costs $340k to build the value will be $410k.... We found that out which sucks as our house will be worth more then the land +build price once finished but they don't go over the 2 amounts.
    And the bank won't really let u do interest only unless it is classed as a construction loan (that's what we were told) not all loans are able to have construction of a house on it. And some banks have special Loans for it because of the break down of payments - ours means we don't pay a fee Everytime we draw down money from the loan

    * this is observation from building from scratch not an extension as u will still have a house that is worth something where as we stop anytime all we have is a block of land with a partial house which is essentially useless* not trying to step on ur toes mummy12
    Last edited by grooviechic35; 23-02-2014 at 09:33.


 

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