Common Mistakes When Financing an Off-the-Plan Purchase

Buying off the plan means your loan is assessed long after you sign the contract. That gap between signing and settlement is where most finance problems start, so plan for it before you commit.

This article is for Morley buyers who are weighing up an apartment or townhouse that is yet to be built. The aim is to help you decide whether your finance will hold up when the building is finished.

Why a Home Loan Pre-Approval Rarely Lasts Until Settlement

A home loan pre-approval usually expires well before an off-the-plan property settles. Pre-approvals commonly last around three to six months, while off-the-plan settlements can be 12 to 24 months away or longer.

When the building nears completion, the lender reassesses your income, debts, living costs and credit history, along with the property itself. A pre-approval is an indication of what you may be able to borrow, not a promise of the final loan. Your borrowing capacity can fall if your income drops, you take on new credit, or lender policy changes in the meantime.

For this reason, applying too early can be a mistake. Many brokers prefer to lodge the formal home loan application when settlement is roughly three months away. Avoid new car loans, personal loans and credit card limit increases in the months before then, because they reduce what a lender will offer.

What Happens If the Valuation Comes in Below the Contract Price?

If the lender's valuation is lower than the contract price, the lender bases the loan on the lower figure, and you must cover the difference from your own funds. The valuation is ordered close to settlement, not when you sign.

Consider a buyer who signs a contract with a 10% deposit and has a pre-approval at a 90% loan to value ratio (LVR). Twelve months later, the lender values the finished property at 5% below the contract price. The lender now lends 90% of the lower valuation, which is 85.5% of the contract price. The buyer has 10% in deposit, so a gap of 4.5% of the contract price appears. The buyer used savings kept aside for exactly this purpose and settled on time. A buyer without that buffer could have defaulted on the contract and risked losing the deposit.

The lesson is to hold a cash buffer beyond the deposit and settlement costs. The trade-off is that money sitting in reserve is not working elsewhere, and it may never be needed if the valuation matches the price.

LVR also affects Lenders Mortgage Insurance (LMI). A borrower with a smaller deposit may pay LMI, and a lower valuation can push the LVR higher than planned. Some lenders also set tighter LVR limits for off-the-plan purchases than for established homes, so lender choice matters. A broker can compare home loan options across lenders before you sign.

Does an Off-the-Plan Contract Include a Finance Condition?

Not necessarily. Some off-the-plan contracts have no finance condition, which means losing your finance does not automatically release you from the contract.

Have your conveyancer or lawyer review the contract before you sign. Ask them to check the settlement timeframe, any sunset clause and what happens if the developer delays completion. Then speak to a broker about whether your finances are likely to meet lender requirements at the expected settlement date, using realistic repayments rather than best-case figures.

As an illustrative example only, at a rate of 6.75% p.a. over 30 years, repayments are about $649 a month for every $100,000 borrowed. The actual figure depends on your lender, loan amount and term. Use our mortgage repayment calculator to test your own numbers, and add a margin in case rates are higher at settlement.

Fixed Rate or Variable Rate Before Settlement?

You generally cannot lock in a fixed rate until your loan is formally approved and settlement is close. Some lenders offer rate locks for up to 90 days before settlement, which is usually shorter than the wait on an off-the-plan purchase.

This means the rate you see when you sign the contract is unlikely to be the rate you pay. A variable rate moves with the lender's decisions, so repayments can rise or fall. A fixed rate gives certainty for the fixed term, but it can limit extra repayments and may involve break costs if you leave early. Some borrowers use a split rate to hold part of the loan at each, which spreads the risk but also splits the benefits.

If you are comparing structures, ask about offset accounts too. A linked offset account can reduce the interest charged, though some loans with this feature carry higher fees. It is worth weighing that against how much you are likely to hold in the account.

Checking Transfer Duty Concessions Before You Sign

Western Australia has an off-the-plan transfer duty concession for certain dwellings in strata and community title schemes. It applies where the contract was entered into before construction started, or while it was under construction but not complete.

The concession rules, including price thresholds and the dates they apply to, have changed in recent years. Confirm the current position with RevenueWA or your conveyancer before relying on any saving in your budget. If you are buying your first property, our first home buyers page explains the support that may be available and how it fits with your loan. If a concession is part of your plan, ask your accountant or conveyancer about how it applies to your situation.

Getting Your Finance Ready for a Morley Purchase

The most useful step is to speak with a broker before you pay a holding deposit, not after. A local mortgage broker in Morley can map your borrowing capacity, test the loan against a lower valuation and explain how long you can expect the approval to last. That conversation can show whether an off-the-plan purchase suits you, or whether an established property or a construction loan is a better fit.

Call one of our team at Solve It Finance or book an appointment at a time that works for you. We will review your numbers and plan your finance around your settlement date.

Frequently Asked Questions