YOUR STEP-BY-STEP GUIDE TO OBTAINING FINANCE FOR AN OFF THE PLAN PROPERTY
- Property In Demand
- May 19, 2017
Once you’ve found the perfect off the plan property, you’ll need to finance your purchase. Obtaining finance for an off the plan property can be a bit difficult, so here are some tips to help you with your application:
1. Obtain pre-approval
With off the plan properties, there can be a longer time between signing the contract and the settlement date. For an established property, this timeframe is usually 90 days. For an off the plan investment, this timeframe could be anywhere from 12 to 24 months.
By obtaining a pre approval for a loan, you’ll be able to know what your borrowing capacity is and if that lender is highly likely to fund your purchase. Just remember – pre approved does not mean guaranteed but it is definitely a foot in the door.
2. Double check the size of the property
For some lenders, in particular the big banks, they require the apartment to meet certain sizing standards before the loan qualifies as a home loan.
As a rule of thumb, the property needs to be at least 40 square metres in total to qualify as a home.
If the size of the apartment you want to buy is smaller, you will either have to leave more of a deposit or you may be charged a higher interest rate on your loan.
3. Apply for the loan 2-3 months before settlement
As stated previously, having pre approval for a loan does not guarantee the funds.
A pre approval is usually only valid for 3 months. After that, the lender has the right to re-assess and determine if the original amount quoted is still a safe amount for them to lend.
This might seem unusual if your income and spending habits have remained the same.
However, if settlement comes around 12 months after you obtained your pre approval, the lender must check that the property still holds the same projected value. Hopefully, prices would have increased in 12 months and you should have no problem getting the loan.
Still, it is better to be safe than sorry and start putting in your application as early as possible.
If your original lender will not lend you the full amount, you may have to pay the discrepancy out of your own money. If that is not possible, you’ll have to be quick finding another lender.
The worst case scenario would be to lose your deposit – and any other fees issued by the developer for breaking the contract.