We spoke with Graeme Vimpani, the owner and director of AlphaLoan Mortgage Group, to get some tips on navigating finance loans for construction projects. Graeme has been at AlphaLoan for sixteen years, so he knows a thing or two about planning a loan and selecting the right broker.
What are the different kinds of finance options available to clients?
That’s one of the big questions we have, and there’s a lot of confusion out there about what is a construction loan? How does it work? How is it different from a ‘normal loan’? Ultimately, what the bank looks for in any loan application — whether it be a build, a purchase, or a re-finance — are two main things: first of all, is there sufficient equity in the project? The second one is simply your borrowing capacity. So if you break it down, a construction loan, in that regard, is no different to any other loan application; they look at how much equity you have and whether you actually qualify for the borrowings that you’re looking for.
What is the most common question you hear from clients trying to finance a build?
They don’t understand how it works. You know, how the progress draws work. When do we actually start making repayments? Are those repayments principal and interest repayments or interest-only repayments? When do we start getting billed? How does the bank value the property that hasn’t been built? Can we include rental income if you’re building an investment property – all these sorts of things. And that’s really a huge part of what I do, and what any great broker out there does, which is help a client understand what it is to get from here to here.
Do you have any tips for those about to begin the lending process?
If you are involved in a finance application for a build, there’s going to be five or six people on your team that are going to help you with that process; you can’t do it all by yourself. So the first thing is to get a great broker in your corner; someone who you can trust and who can break things down and keep it really simple for you — and help you understand what the numbers all add up to and what your journey’s going to look like.
How can you ensure you’re investing in a property that will accrue value over time?
That’s one of the main questions we always get asked: Where’s the next ‘hot spot’? Where is the next suburb that’s going to take off? All that sort of stuff. I think the most important thing when you’re looking at investing in properties – again, think with the end in mind – is: what’s the outcome that you’re looking for? Is it capital growth? Is it positive rental returns? Negative gearing? What’s the outcome that you’re actually after? And that will help determine and shift your focus as to where you should be looking.
What would you look out for when hiring a mortgage broker?
So that will be the first thing: if you ask your friends and family, ‘Who’s a great mortgage broker that you’ve used or ran into before?’ The second one is: check their background! How long have they been mortgage broking for? Who are they accredited with – in other words, which banks do they have on their panel? If they’re only a single bank broker, then you’re not going to get much choice. Now, we’ve got thirty or forty banks on our panel, so we have a lot of choices to offer. But also I think, importantly, if you’re looking to build, really ask them about how much building they’ve done themselves personally, or how many builds they’ve done for their clients. Have they done many construction loans? Are construction loans a specialty area for them?
At Brownhill Homes, we’re committed to helping you with your entire building journey. If you’re unsure where to start, we’d love to discuss your project. Get in touch today.