A walk down a boulevard of display homes can fill any potential first homebuyer with ideas and a sense of opportunity. Not only do these homes look so clean and shiny, with so many desirable features, they’re often much more affordable than properties in more established suburbs. Building companies generally build display homes in outer city suburbs to show off their design concepts and expertise. They are often packed with every feature on the glossy brochure to entice homeowners with a block of land to choose their vision. But the homes themselves are often very attractive to investors and new homebuyers. Yes, a display home may be a more affordable investment than other types of properties. However, getting finance for a display home isn’t always easy. Most lenders take a conservative approach to financing the purchase of display homes because of the leaseback arrangement that most builders use as part of any sale offers less flexibility for the buyer (and the lender). Some lenders, for instance, don’t accept display homes as security for a loan.
Many building companies in Australia use display homes to showcase their house design proficiency. They often fill these homes with top-end features to show potential new buyers what they may get if they choose a house “with the lot”. These are often their best, fully customised examples. Builders may create whole display home villages to present designs and house plans. Other display home villages bring together the creations of multiple builders, all in one convenient location. Many display homes are bought under a leaseback arrangement. This dictates the terms under which you buy a home and lease it back to the builder while it is being used as a display property. Effectively, you are the investor and the builder is the tenant. At the end of the leaseback agreement, you can choose to make the home your permanent residence or continue as a landlord by finding tenants for the property. Leaseback arrangements are generally no longer than 24 months but may have terms and conditions specific to that property and display village.
Builders sell many, if not most, of their display homes. This is not surprising, considering a display home has several benefits:
The amount you can borrow depends not only on your lender but your credit history. The value and location of the property matters, too. The most important consideration is the leaseback agreement you may be forced to enter with the builder. This gives the builder the right to continue to show the home for a guaranteed rental return. The usual period is less than two years. The more restrictive the leaseback arrangement is, the more difficult it could be to find a lender. This might limit the number of home loan options you have available. Indeed, many major lenders aren’t willing to lend money for display homes that have a leaseback arrangement. Likewise, lenders don’t offer low doc loans for display homes because of the number of factors that come into the deal. Many would see any arrangement involving a leaseback as high risk. An alternative may be to get a guarantor loan. This is where a guarantor offers their own property (or properties) as security for the loan. This guarantor, who is usually an immediate family member, may also contribute additional income to help you pay off the loan. It may also avoid the need to pay Lenders Mortgage Insurance (LMI). You can read more about guarantor loans here.
UNO home loan advisers can help you finance a display home. Whether you’re a first homebuyer or investor, we can provide home loan comparisons and more: Use our loan calculator to learn how much you need to borrow Compare home loans to find the most suitable one for you Talk to an expert about display home loans to better understand all your options. Book in a quick call with our customer care team.This information is general in nature and you should always seek professional advice when making financial decisions. Book a call in with UNO
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