Financing off-the-plan: What lenders look for

Understanding how lenders think can make your finance journey a lot smoother.

Getting finance for a new home is a straightforward process for most buyers - but off-the-plan purchases do have a few quirks that are worth knowing about before you start.

The good news: lenders approve off-the-plan finance all the time. It's a well-understood purchase type. But because you're buying something that doesn't exist yet, the assessment process looks at a few things a little differently. Understanding what lenders actually care about - and why - puts you in a much stronger position from the start.

Here's what they're looking at.

Your ability to repay, assessed today

The first thing any lender wants to know is whether you can comfortably service the loan.

This means looking at your income (employment type, stability, how long you've been in your role), your existing debts and liabilities (car loans, credit cards, personal loans, HECS), your living expenses, and how the proposed repayments sit within your overall financial picture.

For off-the-plan purchases, this assessment happens when you apply for formal approval - which is typically close to settlement, not when you first sign the contract. That's an important distinction.

It means your financial position at settlement is what matters most. Not necessarily where you are today.

This plays out differently depending on where you are in life. If you're buying your first home, your employment history and savings discipline will carry a lot of weight. If you want to sell so you can move into something brand new that better suits your lifestyle, lenders may factor in the equity or proceeds from your current home. If you're adding to your property portfolio, the rental yield on the new home can sometimes count as income - though how much lenders will factor in varies.

A&D Tip: If you're planning a career change, parental leave, or any other shift in income between now and settlement, talk to a mortgage broker early. They can help you plan around it.

Your deposit - and where it came from

Lenders want to see that your deposit is genuine savings - money you've built up over time, rather than funds received at the last minute.

Most lenders define genuine savings as money held in your own account for at least three months. This can include regular savings from income, term deposits, and shares or managed funds held for a period of time.

For off-the-plan purchases, your deposit sits in a trust account during the build period - it doesn't go to the developer until settlement. Lenders know this, and it's factored into how they view the transaction.

Where this gets more nuanced is around the source of your deposit:

Buying your first home? Your deposit will almost certainly need to be genuine savings. Lenders want to see that you can manage money consistently over time, not just that you have a lump sum sitting somewhere. If family is helping out with a gift, some lenders will accept this - but usually alongside a portion of genuine savings.

Saying goodbye to your family home? If you're selling your current home, the equity or proceeds are a perfectly acceptable deposit source for most lenders. The timing between your sale and settlement on the new home is worth planning carefully with your broker.

Growing your investment portfolio? If you're using equity in an existing property rather than cash savings, the process works differently. The lender will assess that property's current value and how much usable equity you have, alongside your overall borrowing capacity across all your loans. This is where having a broker who understands investment lending is particularly valuable.

The valuation - and why it can be tricky

When a lender assesses an off-the-plan purchase, they'll carry out a valuation of the home. But because it isn't built yet, that valuation is based on the contract price and the plans and specifications in your contract.

The final valuation happens at or near settlement - once the home is complete. And that's where the variable comes in.

If values in the area have risen during the build period, the valuation will likely come in at or above the contract price. If the market has softened, it could come in lower.

A lower valuation doesn't automatically mean your finance falls over, but it can affect how much the lender is willing to lend, whether you need to contribute more at settlement, and whether Lenders Mortgage Insurance (LMI) applies.

If you're building your property investment portfolio with his new purchase, a lower valuation can also affect your overall position - particularly if you're using equity across multiple properties. It's worth stress-testing your numbers before you commit, not just at signing.

This is one of the reasons it's worth keeping a savings buffer throughout the build period, regardless of where you are in your buying journey.

Your loan-to-value ratio (LVR)

LVR is the amount you're borrowing expressed as a percentage of the property's value. If your home is valued at $700,000 and you're borrowing $560,000, your LVR is 80%.

Most lenders prefer an LVR of 80% or below for off-the-plan purchases. Borrowing above 80% is possible, but typically triggers LMI, which is an additional cost added to your loan.

Some lenders apply more conservative LVR limits to off-the-plan apartments specifically, particularly in higher-density developments or markets with significant new supply. This varies by lender and location.

If you're buying your first home and stretching to get there, LMI isn't the end of the world - think of it as a cost of entering the market sooner rather than later. But it's worth understanding upfront so there are no surprises. If you're managing multiple loans across a portfolio, keeping LVR low is usually part of a longer-term strategy, and worth discussing with your broker and accountant together.

The developer and the development

Here's something buyers don't always expect: lenders assess the development itself, not just your finances.

They look at things like the track record and reputation of the developer, the construction contract and timeline, how many homes have already been sold (known as presales), and the overall size and composition of the building. This matters because the lender is taking on a long-term commitment too. 

If you're an investor building your portfolio, some lenders have limits on how much they'll lend against a single development - which can occasionally affect approval timing if a building has a high proportion of investment purchasers. A good broker will know which lenders are well-positioned for the development you're buying into.

Your credit history

Like any home loan application, lenders will look at your credit file, including any missed or late payments, applications for credit in the past 12 months, and any defaults or court judgments.

Multiple credit applications in a short period can affect your score, so it's worth being thoughtful about when and where you apply. If you're not sure where your credit history stands, you can access a free copy of your report through Equifax, Illion or Experian before you apply.

Interest rate buffers

Lenders don't just assess whether you can afford the loan at today's rate - they test whether you could still afford it if rates were higher.

APRA requires lenders to stress-test applications at the current rate plus a buffer, typically around 3%. So if the rate on your loan is 6%, they'll check that you can manage repayments at 9%.

This affects borrowing capacity, and it catches some people off guard - particularly those buying their first home and stretching to get there, or those looking to add significantly to their portfolio. It's not a reason to avoid borrowing. It's a safeguard that protects you as much as anyone.

If your borrowing capacity is lower than you expected, this buffer is often why, and a broker can help you understand your options.

What you can do now

Whatever stage you're at, a few things make a real difference in the lead-up to settlement:

Work with a mortgage broker. Not all lenders treat off-the-plan purchases the same way. A good broker knows which lenders have appetite for new apartments, which are more cautious, and how to present your application in the best light.

Keep your finances stable. Avoid large credit purchases, new loans, or job changes in the lead-up to settlement - especially in the final six months.

Hold your savings buffer. Even if your deposit is locked away in trust, keep building savings. It gives you flexibility if the valuation comes in lower than expected.

Check in with your broker six months out. Circumstances change. Rates change. Policies change. A check-in before settlement means there's still time to act if anything needs addressing.

Finance for off-the-plan homes works well for the vast majority of buyers who go in prepared. The key is understanding that the lender's assessment is largely about the future - your financial position at settlement, the value of the completed home, and the credibility of the development you're buying into.

Get good advice early, keep your finances in order, and you'll be in a strong position when the keys are finally ready.

For more off-the-plan buying guides, click here.