Being a Property Developer requires you to have an understanding of finance and what the banks look for when assessing how much you can borrow. To get you started, here are some questions you’d want to ask your lenders –
- Understand the difference between a banker and a mortgage broker. Both can assist you with your home loan and there are reasons why you’d choose one over the other. Your ultimate goal is to find a mortgage with an affordable interest rate and low fees, so ensure your banker or broker can guarantee their loan estimates. It is important that you consider the advantages and disadvantages of each. a) Mortgage brokers have regular contact with a wide variety of lenders. They can save you time and headache of having to call up dozens of lenders and comparing their mortgage terms and rates. The biggest advantage of using a broker is that they can steer you away from particular lenders who bury onerous payment terms in their contracts. Disadvantages are that their interests may not be aligned with your own b) Banks are generally more established institutions and hold majority of the market when it comes to mortgages. For example, 50% of mortgages are held with the CBA and Westpac. For some of you, going with a banker instead of a broker may seem easier as it’s more convenient to stick with the same bank that you manage all your finances with. But as banks are big institutions you might find their service to be slower and less personable than a broker’s.
- Determine your maximum borrowing capacity. This is largely made up of your income, financial commitments, current savings and equity. Also remember that borrowing money to fund a development is quite different to borrowing money to buy an investment property.
- Understand the importance of the amount you can borrow without relying on the subdivision statement of compliance being issued.
- Understand the functions and requirements of a construction loan and mortgage insurance.
- Add in the contingency funds from your feasibility.
- Also consider which banks are best for development finance, as some might have better interest rates than others.
- We have a network of finance partners who can assist in arranging your finance. Please feel free to contact us on 1300 TREVOR to arrange a free, no obligation assessment.
Most builders will include a special condition which will be subject to finance. If this isn’t found in the contract, best to make that enquiry with your Builders contract administrator.
Once you’ve decided on the pricing, inclusions and design the next step is to sign the building contract and pass on the document onto your bank lender to kick start the finance application.