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hi guys! sorry i couldnt find a separate and appropriate category to ask this but wonder if u guys can shed some insights.

so i spoke to my banker yesterday re the mortgage of the new plc and they are valuing it at 2.8m while the other banks are valuing it 2.7m.

while this means a higher bsd is to be paid, it also means a higher loan amount can be granted so no issue w that. 

she then said that initial valuation might change for the higher after seeing the quote for the recon/a&a, which i thot was just bizarre because the property is not even built yet so naturally i would just take purchase price + a&a cost.

is this a good scenario given that a higher future valuation will naturally mean a higher aa loan to be granted?

is this scenario normal? any other considerations? my objective is to max out the loan.

Edited by peachpeach
 

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bank valuation will differ from bank to bank based on their valuers' interpretation. for BSD, you will pay based on your offer price which is accepted by the seller. the bank which you are taking the mortgage loan from will then get a valuer to perform the valuation again and this value will be the agreed buying/selling price of the house. don try to get a higher valuation that what is the agreed price as this would mean you pay more BSD but your bank loan will still be based on the buying/selling price and NOT the valuation. remember that BSD is based on valuation or buying price whichever is higher. the only way your bank will grant you more loan is when your purchase price is higher which does not benefit you at all.

when you need to do recon/A&A, your bank will loan you the money as a construction loan which is different from the mortgage loan. this construction loan will be at a higher interest rate during the construction phase until the TOP/CSC is obtained where it would then be converted to part of your mortgage loan at the lower interest rate. (this is from my understanding, check with your banker if this is the case or not)

now, bank will NOT loan you the full 100% for the recon/A&A. the will loan you usually between 70 to 80 percent of the quotation for the recon/A&A. so this means you will need to fork out CASH for the first 20 to 30 percent of the construction until the milestone is reached where you will start to draw down the construction loan. the repayment for the construction loan will be based on how much is drawn down plus intereste. eg: if your total loan is 500k, and your first draw down is 50k, then you will pay for the installment for this 50k first. if your 2nd drawn down is 100k, then your next installment will be for the 150k which is drawn down and disbursed to the contractor.

before the bank will loan you money for the recon/A&A, you will need to get a quote from the contractor as well as provide the architectural drawings for the house after the recon/A&A. the bank will then get a valuer to value the house again for AFTER recon/A&A based on the architectural drawings. the valuation of the house AFTER recon/A&A MUST be more than the value of the house BEFORE recon/A&A plus the loan amount that you are seeking. eg: current value is 2.7m. you are looking to borrow 500k for recon/A&A, so valuation of the house AFTER recon/A&A must be more than 3.2m.

do note that the minimum value AFTER recon/A&A is determined by the bank. if the value AFTER is lesser than what the bank is looking at, that would mean the bank will loan you less money.

in summary, you are looking at taking 2 loans. mortgage loan for you to buy the house and construction loan for you to renovate the house AFTER you officially take over the house.

 

 
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1. yes correct so im stuck in this iffy situation. because it looks like the buying price is lower than the valuation price and i end up having to pay a higher bsd because the valuer is not in sync with 4 other banks. the natural reaction will be to not to use this bank but unfort they are indeed providing a slightly better rate (tho i havent calculate if all the $ savings is indeed superior than the additional bsd due to the higher valuation). how can i get him to sync it lower or totally no point? banker did somehow assure me that in most cases after recon, the valuation should be higher which will mean it is likely i can get the full a&a loan as desired.

2. i dont understand the issue will the first draw down etc. are u saying that if the first draw down is 50k only before the next milestone can be reached, any additional/unexpected cost will be paid in cash? dont quite understand what is the sticky issue. also dont understand the instalment part. i would just think im paying a monthly mortgage for the whole lump sum?

3. in a classic case, the valuation of the house should be higher or at least flat to purchase price + recon/a&a cost. in what scenario will that not be? just dont want the shock that i end up with a lower loan amount based on a silly guy sitting behind computer punching some numbers. 

 

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Firstly, which party did the request for the valuation reports you have seen now? If it’s the seller side, then of cos valuation is high so that they can get a higher selling price. The bank which you’re getting the loan from should do another valuation once you sign on the line with them. Check with your banker on this. 
 

Let’s say your construction cost is 400k. The bank will only lend you 25percent which is 300k. So you will have to fork out 100k to pay your contractor before the bank will start disbursing their loan which is the draw down. The construction loan is different from the mortgage loan. So you will have 2 loans to service until you get TOP where both loans would be combined into 1.

the bank can only give you a loan for what is needed now which is the mortgage based on the purchase price. How can they give you more loan for the renovation when you are not the legal owner yet even if have gotten a quotation for the renovation works? That’s why usually there are 2 separate loans. I suggest you sit down with your banker and get them to rope in their colleagues from the proper department to explain to you how the whole thing works. 

 

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Banks usually have a list of valuers they use. Ask your banker if they will be doing another valuation after you sign with them for the mortgage loan

when I was buying my house, the seller had valuations which were higher than the final transacted price. When my bank did a valuation after I signed, the valuation came back to be the same as the buying price. One of the valuations which the seller had gotten was from the same bank which I had taken the loan from. I was surprised at why the valuation came back lower until I realized why this is so. Hope you can read between the lines. 

 

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Not sure what you mean by lower end. I think you are still confused by how the loans work. 
 

bsd is based on the current valuation or purchase price of the property depending on which is higher. 

my bsd is based on the purchase price which is the same as the valuation of the house. Bank can grant me up to 80% of the purchase price as loan.

construction loan was never factored in besides the knowledge that the bank that we are taking the mortgage loan from also offers construction loans. 
 

my construction loan was taken almost 2 years after the house purchase so basically it is an additional loan on top of the mortgage. Meaning I have 2 loans now. When applying for the construction loan, bank will perform a valuation and request confirm that the value of the house in the current state is worth an X amount and based on the architectural plans, the house will have a value of at least Y value after completion. The difference between X and Y must be more than what the bank would be loaning to you as construction loan. Eg, cost of construction is 400k, bank will only loan up to 300k. So difference between X and Y must be more than 300k. So the bank will loan you this 300k as construction loan at a different interest rate than then home loan rate. This interest rate is almost at prime rate which is between 4 to 5 percent. So you can see this interest rate is much higher than the normal home loan rates which has now dropped below 2percent again. However, after TOP or CSC(depends on bank requirements) the outstanding construction loan amount can be merged to your mortgage loan and you pay lower interest rate which is your home loan rate. But the bank will do a valuation again after completion to confirm that the value of the house is now at least the Y value or more. 
 

so you can see, construction loan is never part of the original purchase loan and bsd. The only reason why you need to factor the construction loan now is mainly due to the TDSR. You need to know that when you intent to take the construction loan, you can still qualify for the additional loan amount based on TDSR. If not the bank can only loan you up to the maximum allowed based on your income. This requirement is same across all banks since TDSR is a government requirement and banks are unlikely to deviate from this requirement and grant you more loans than what they are allowed to. 

 

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sorry for late reply as in and out over festive season. what i meant to illustrate was what the banker told me. the scenario now is my banker valuation is higher than the purchase price (i have to pay higher bsd) however, once i submit the construction quote, the bank will only loan me 75% of new valuation ( purchase price (which is lower) + construction cost), which end up a smaller loan (because the purchase px is lower). so in the end, i get loaned a "lower amount" for construction yet paying a higher bsd. not sure if i make better understanding. i am ok w the mortgage loan just abit upset w a lower amt of construction loan cos it means i have to pay more cash lo

Edited by peachpeach
 

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firstly, do you have an existing housing loan? if not, then you could get up to 80% of the purchase price as mortgage loan.

construction loan is usually at 75% of the quotation of construction works (based on info from 3 local banks). so if you want to get a higher mortgage loan, then don't discuss the construction loan at this point in time. just sort out what you need to purchase the house first and then apply for the construction loan after you have decided which builder you want to go with. cos you will need to submit the quotation from the builder for the application of construction loan.

just make sure the bank you are taking the mortgage loan from does offer construction loan as well.

work out a spreadsheet on the various bank's offers and then decide on which one to go with. the lowest rate you get now doesn't mean you will benefit in the long run due to other factors. When I took my home loan, I didn't go with the cheapest rate simply because I knew I needed to take a construction loan and the bank with the lowest rate doesn't do construction loans.

 

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The bank is saying that they are willing to loan up to 75% of Gross Development Value (GDV).

The bank is hinting to you that your construction budget is on the high side. 

If u take a normal property mortgage, u are not suppose to tear the building down without their consent. 

Based on your requirements, you might want to start off with a very basic construction budget and pile on the bling bling stuff after construction starts.  This is risky but its a viable Plan B

 

 

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1 hour ago, yoongf said:

The bank is saying that they are willing to loan up to 75% of Gross Development Value (GDV).

The bank is hinting to you that your construction budget is on the high side. 

If u take a normal property mortgage, u are not suppose to tear the building down without their consent. 

Based on your requirements, you might want to start off with a very basic construction budget and pile on the bling bling stuff after construction starts.  This is risky but its a viable Plan B

 

Her intention is to max out the loan. Any bling bling stuff they add in after construction starts will become VO which they need to settle in cash first before bank will approve drawn down. So kind of defeats the original intention of maxing out the possible loan amount 

 

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For the construction loan, they are basing on a formula (can’t Rmb exactly but sth about new valuation) but I scared if I get mortgage and construction loan separately, if they turn out to reduce the construction loan then I’ll be ?!!

 

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