Right now in Perth, securing land to build on is harder than it was 12 months ago. In June alone there were 1,916 land sales (that’s 100 more than the first 5 months of 2020 combined!). The demand is outweighing the supply and now home buyers are facing two main concerns when purchasing land.
Firstly, not having a titled lot can put a slight pause on the home building process. The land needs to be titled so you can start building on it, which is why titled blocks are selling like hotcakes (you can read our blog on titled land here)!
Secondly, home buyers need to have proof that they are eligible to buy land. This means having either a Letter of Eligibility (LOE) or Pre-approved finance. These documents are now a prerequisite you need to obtain before you can put a block on hold. This is because it tells the land agent that you have sought financial advice, and that your broker/lender has assessed your financial situation – stating you can afford to build a new home.
What is a Letter of Eligibility (LOE)?
An LOE is a letter written by your Mortgage/Finance Broker or Bank stating you are eligible to proceed with an application for finance for a home loan. However, an LOE does NOT guarantee you will be approved for finance. Instead, it states that you’re in a position that satisfies certain criteria for a home loan. You’ll still need to apply for unconditional finance through your lender to be officially approved.
What is Pre-approved Finance?
Pre-approved Finance is when your lender has agreed to lend you a certain amount of money to purchase your new home but has not proceeded to a final approval. It allows you to know your maximum available amount you can use in order start you home building journey.
Why do Land Agents need this?
There are a few reasons as to why Land Agents are requiring either an LOE or Pre-approval letter before they’ll give you a block of land.
- To make sure the people enquiring and putting land on hold can afford it.
- Prevents buyers who aren’t 100% committed from placing blocks on hold, therefore stopping approved purchasers from securing the land.
- The Land Agents aren’t wasting their time on buyers that won’t proceed.
- The home building process runs smoother and quicker, particularly with the Federal HomeBuilder Scheme that has a strict 3 month to site deadline.
As frustrating as this may seem, this requirement will help you in the long run. Because not only will it help you secure land, it allows you to narrow down what home design you want and can also afford.