Buying a property off the plan means that you agree to buy a property even before work on it has started or it is still under construction. This could be quite a difficult decision to make since the buyer, for the most part, will have to rely on the artist’s rendering, developer’s floor plan, price lists, and other related property documents.
Most developers are going to require you to pay a deposit to secure the unit. This means you’ll have to come up with cash even if you don’t see any structure up from the ground yet. One way to go about is to check out the options listed by Safe Home Offer and similar sites. Other than that, there are four other suggested ways for you to finance your off-plan property. Take a look at them:
Your first option, of course, in financing your off-plan property would be to pay in cash if you’ve got the slush funds for it. But before you push through with your off-the-plan cash purchase, you should thoroughly research information about the proposed property development project as well as the proponent developer. Try to look for other projects completed by the same developer. Find feedback, if any, from those who bought off-plan properties from them.
You should also make an effort to understand the contract of sale. Make sure you thoroughly understand what the terms and conditions mean. You should also do some research about similar properties within the vicinity, where the project is going to be built. Check out the prices, rental returns, and most recent resale values of similarly priced properties in the same neighborhood. Compare it with the price of the off-plan property you’re buying.
Another way to buy off-plan property would be to take out a bank loan. Most banks would give you a loan to purchase an off-plan property as long as you meet their requirements. However, before you take out a loan, compute the forecasted rentals of the property if you’re going to buy it as a rental property.
Keep in mind that developers who sell off-plan properties would typically require their buyers to give a 10% deposit. This is based on the gross selling price of the property that you’re buying. You have the option of asking your bank to help you with the funds needed to pay off the deposit on the purchase. Banks usually have home loan experts who can help you with this. As an alternative, you can ask your lawyer or real estate broker to help you talk to the bank.
At this point, what off-plan buyers usually do is they go to the bank and ask for a loan pre-approval before going ahead with purchasing the property. Doing this gives them the assurance that they will have the financing needed for both the cash deposit and the balance to purchase the off-plan home if the sale is a go. When it’s time to settle the purchase, they are ready with financing to close the deal.
If you’re planning to pursue this option, seek assistance from a home loan expert. They can help you get the best financing package for your off-plan purchase.
Home Equity Loan
Some real estate owners or investors find themselves unable to get a bank loan or home mortgage loan because they haven’t paid off an existing bank loan in full. Some of them have already paid a substantial portion of their home mortgage loans, and some are nearly paid off in full. But some banks won’t let you get another loan if you still have an ongoing concern with them. There are also banks who, though you don’t owe them anything, would decline you if the credit check comes back with a report that you have an existing mortgage elsewhere.
A third option for you, in such circumstances, would be to avail a home equity loan. This is a way of making the payments you’ve made on your previous or existing home mortgage loan work in your favour. A home equity loan is basically a way of getting a second loan from the bank based on the amounts you’ve already paid on your existing loan. In short, you can get a new loan because you’re already substantially paid on your current loan.
Seller financing can be one of your options if you can’t get a bank loan. In seller financing, it’s the seller who extends the loan or financing to you so the sale can push through. This means that the home would be sold to you for the price agreed upon, but you’ll be owing money to the seller. You can then pay your balance to the seller in monthly instalments.
Sometimes the seller might ask you to sign a real estate note. It is a legal instrument, usually contained in a document, which states that you owe money to the seller based on the contract of sale. Under certain rules, the seller is allowed to sell, transfer, or assign the real estate note to another person. This can be a financer, broker, investor, or another developer who will buy the note.
Planning An Off-Plan Purchase
Buying a property just by looking at the blueprints and designer’s layouts can be a daunting decision. You’ll have to plan carefully before you go ahead. There are a number of ways you can finance your off-plan purchase such as those discussed here. At the end of the day, though, just like any major investment decision, you have to think it through and plan it well.