How do I even get a loan for an off the plan house before it exists?

Buying an off-the-plan property is an exciting opportunity, but securing a loan for something that hasn’t even been built yet can feel like a daunting task. It’s a unique situation—how do you get financing for a home that’s still in the planning stages? While it might seem complicated, with a bit of preparation and the right guidance, the process is manageable. Here's what you need to know to get your financing sorted for an off-the-plan property.

Get the Ball Rolling Early

One of the most important things to understand when purchasing an off-the-plan property is that you shouldn’t wait to start the loan process. Even if the property isn’t ready yet, securing financing is something you’ll need to start on right away. Most people sign a contract with the condition that they can back out if financing doesn’t come through. But even with that safety net, it’s wise to begin talking to a mortgage broker or your bank as soon as possible.

The reason for this is simple: securing approval from a bank can take time. Banks often require several days, or even weeks, to process your application, and you don’t want to find yourself rushing at the last minute. The earlier you start the conversation, the more time you’ll have to ensure everything is in order before the deadlines hit.

Pre-Approval Isn’t Always an Option

Ideally, you might get pre-approval for your loan before you sign the contract. This would give you peace of mind knowing that the bank is ready to lend you the money once the property is built. However, pre-approval isn’t always available, especially if you're a new customer or if the bank is particularly busy.

If pre-approval isn’t possible, don’t worry—you can still get a good idea of how much you can borrow. Online mortgage calculators can give you a rough estimate based on your income and expenses. These tools are handy, especially for first-time buyers or those with straightforward financial situations. However, if your finances are a bit more complex—say, you already own multiple properties or have other financial commitments—it’s best to have a conversation with a mortgage broker. They can give you a more accurate picture of what you can afford and help guide you through the lending process.

Why Use a Mortgage Broker?

While it’s not mandatory to use a mortgage broker, it’s highly recommended. Brokers can save you time, and more importantly, they can improve your chances of getting your loan approved. They know the ins and outs of the mortgage process and can help you avoid common pitfalls.

When you apply for a loan, the bank will need a variety of documents to assess your financial situation. Expect to provide recent pay slips, bank statements, details of any debts, and information about your assets. If you’re not sure what to provide, your broker can help guide you through the paperwork and ensure everything is in order. This upfront preparation can make a huge difference, as incomplete applications or missing details can delay the process and push you closer to your deadline.

One of the biggest advantages of working with a broker is that they can approach multiple banks on your behalf. Not all banks have the same lending policies, so what might be a deal-breaker at one bank could be an opportunity at another. Your broker can help you understand which bank is more likely to approve your application, and even adjust your application to improve your chances.

Be Transparent with Your Broker

Mortgage brokers are there to help, and they need as much information as possible to do so effectively. It’s always best to be completely upfront with them, even if you’re not sure if certain details are important. Whether it’s additional income, side projects, or any financial challenges you’ve faced in the past, being transparent allows your broker to present your case in the best possible light.

It might feel like you’re disclosing a lot, but the more your broker knows, the better they can tailor your application. Even if some of that information isn’t directly relevant to the loan, it’s helpful for your broker to be aware of your full financial picture. The last thing you want is for the bank to request more documents at the last minute, potentially causing unnecessary delays.

Navigating the Risk of New Builds

One unique challenge when buying an off-the-plan property is that there can be a significant time gap between when you sign the contract and when the property is ready. While the bank may approve your loan initially, your pre-approval may only last for 12 months. If the construction takes longer than expected, you could find that your financing has expired by the time the property is ready for settlement.

To minimize this risk, your broker will likely advise you to avoid major financial changes during the build process. Big purchases, like a new car or taking on additional debt, could jeopardize your ability to secure funding when the time comes. It’s important to remain financially stable during this waiting period so that when the property is complete, you can finalize your loan without any issues.

Understanding Deposit Requirements

When buying an off-the-plan property, it’s crucial to understand the different deposit requirements involved. Developers typically require a 10% deposit once the contract is unconditional—usually at the end of the 10-day due diligence period. This is separate from the deposit required by your bank, which is usually 20% of the property’s value. The good news is that the 20% deposit doesn’t need to be paid until the property is settled, so you have more time to gather the necessary funds.

Many investors use the equity from other properties to meet this deposit requirement, so it’s worth speaking with your broker about your options. They can help you structure your finances to meet these deposit requirements without putting unnecessary strain on your cash flow.

What Happens When the Property is Ready?

Once the property is completed, the final steps of your loan process will begin. Your mortgage broker will revisit your application, update any details, and finalize the terms of your loan. This is when you’ll decide on things like loan structure, interest rates, and how to align your loan with your long-term financial goals. It’s an opportunity to make sure everything is in place for the settlement.

Until that point, your job is to ensure your finances stay in order, that you’ve paid your deposit, and that you’re ready for the next steps. Your mortgage broker will be with you throughout, ensuring everything runs smoothly.

Final Thoughts

Securing a loan for an off-the-plan property isn’t as complicated as it may seem at first. The key is to start the process early, work closely with a knowledgeable mortgage broker, and keep your financial situation stable throughout the build. With the right preparation and guidance, you can navigate the process with confidence and be ready to settle into your new home once it’s completed.