How should I structure finance for bare residential land with new building to follow?

[SJM]

I will be grateful for views on how to structure payment of my first property purchase, bare land in a residential subdivision.

I will need mortgage finance to realise a completed land and building package. Building design will follow purchase of the land.

My personal funding sources will be cash savings and KiwiSaver withdrawal.

Can the banks dictate housing type when dispensing mortgages? For personal and cost reasons I don't propose the conventional three bedroom double garage family McMansion that prevails in the area.

I could pay for the land outright from savings, provided this does not limit my choice of building type. Is this a situation where I would maximize freedom of building type by placing a mortgage on the land and using more of my own funds for building?

Thank you in advance.

[Nick G]

Speak with your lender or broker.

If it is in the form of a house and land package, you would have the build priced now and go and get finance on the total package.

If you're buying and settling on land then looking for a builder you should be able to get 50% lending, which you would refinance once you head into a build but again, speak to your bank.

[Craig Pope Mortgages]

Hi SJM, alot will depend on what you mean by your own 'housing type'. Yes banks prefer a fixed price build contract and if the housing type is a bit unusual, then it will be reflected in the registered valuation. So within reason I don't think the type of house will be a major issue, more important will be servicing, the build contract and the valuation.

[Meehole]

I've had a few clients previously get a "New Build" loan - Sovereign I think. Interest only on amount drawn down. Payments to building company in about 20 - 25 stages so building company like them. They will usually include estimated interest into loan and if the house gets built before used up you can usually retain that money or have it paid back into the mortgage.

[SJM]

Thank you Nick, Craig and Meehole for your helpful replies.

Nick, it will be buying and settling on land initially.

Craig, while nothing is determined and I have an open mind, I am thinking of two buildings on the one site. Firstly a multi-purpose building that could function variously as storage, an office and/or short term visitor holiday rental accommodation. Secondly, a physically separate compact home on the same site.

Prior to these functions the multi-purpose building could be used as a site office and workshop for a builder to use as a base for the separate house to follow.

Another question would be how do banks look upon short term holiday rental income when assessing mortgage applications?

[Wayne]

Another question would be how do banks look upon short term holiday rental income when assessing mortgage applications?

I don't know for sure but I suspect they will ignore it.
If you could show a long term history of regular income (last 10 years always earnt at least $10k/yr) they might use it.

[Meehole]

Thank you Nick, Craig and Meehole for your helpful replies.

Nick, it will be buying and settling on land initially.

Craig, while nothing is determined and I have an open mind, I am thinking of two buildings on the one site. Firstly a multi-purpose building that could function variously as storage, an office and/or short term visitor holiday rental accommodation. Secondly, a physically separate compact home on the same site.

Prior to these functions the multi-purpose building could be used as a site office and workshop for a builder to use as a base for the separate house to follow.

Another question would be how do banks look upon short term holiday rental income when assessing mortgage applications?

Most builders use their vehicle as their office and have a shed that can be placed at each job site to house their tools so you don't need to cater for them.

[Nick G]

I will leave it to the broker to confirm but I suspect you'd be better off applying for lending as two homes.