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What should you know about vacant land loans in Australia?
You’ve found the piece of land in a location you love and are excited to build your dream home. Even if you aren’t ready to build yet or are looking to keep the land as an investment to sell later, you’ll still need to find the funds to buy the land. A vacant land home loan could be what you need to help you make this purchase. Before jumping into a vacant land loan, you should first understand what they are and how they work.
A land loan is a type of home loan you take out to buy a vacant piece of land. This may be to build a home in the future or as an investment. The empty land is used as security for the loan amount in the same way a property is used when getting a regular home loan.
Land loans are seen as riskier by lenders as land prices fluctuate, and selling land is often more time consuming than selling a property, so lenders take a conservative approach. To help protect themselves from this increased risk, lenders often apply stricter conditions like a lower loan-to-value ratio (LVR) and a higher interest rate.
What does a bank assess for vacant land loans in Australia?
Before lenders approve your vacant land home loan application, they assess several things, including:
- Your borrowing power: Based on your income, expenses, assets, and current outstanding debts.
- The size of the land: If you wish to buy land stretching less than 2.2 hectares, you may be able to borrow up to 95 per cent of the land value. But, if you’re looking at land which is more than 11 hectares, you may only be able to borrow up to 80 per cent.
- The location: Lenders consider ease of access and availability of infrastructure like utilities and roads before approving your application.
- The intent or the purpose of buying the vacant land: The lender may be more willing to approve your loan application if you’re planning to build a home to live in rather than buying the land as an investment
What should you do before taking out a home loan for vacant land?
You can do many things before you approach a lender about taking out a home loan for vacant land. You should try to get an idea of your borrowing power before applying for any type of loan with a lender. An online borrowing capacity calculator can help you understand your borrowing power. Depending on your circumstances, lenders may offer to lend you up to 95 per cent LVR.
Your borrowing power also determines the amount you’ll have to pay as a deposit. For example, if the lender approves a loan for 70 per cent of the property’s value, you would have to pay 30 per cent as the deposit. But, if you’re not in a position to pay the deposit, there are still ways you can take out a loan. Lenders will still expect you to illustrate some form of genuine savings. It can help indicate that you’re financially responsible enough to repay the loan.
Before applying for vacant land loans in Australia, you should check if there are any hidden fees. You should also check if there are any processing or other loan-related fees and legal charges. Also, check with the lender if you can make additional repayments without incurring any fees. This can help reduce the interest you pay long-term.
You should understand that vacant land loans in Australia aren’t the same as construction loans. When you take a construction loan, the property needs to be built within a specific time frame from when the loan is first taken out. Generally, this is between one and three years, depending on the lender. On the other hand, when you take out a vacant land loan, there are no time constraints around constructing a property. You can either build on the land or keep it vacant; both options are applicable with this type of loan.
If you’re looking at applying for a land loan, you could contact a mortgage broker to assist you. The application process is simple: fill out an online assessment form and depending on the purpose of the loan, the mortgage broker would check whether you qualify for a vacant land home loan. If you do, the broker will help you through the whole process of obtaining a vacant land loan in Australia.
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Product database updated 23 Nov, 2024
