Do you know how off-the-plan loans actually work?

Off-the-Plan Loans Work Differently From Standard Purchase Loans

Off-the-plan loans require approval twice: once when you sign the contract, and again at settlement when the property is complete. Most lenders will reassess your financial position and revalue the property before releasing funds, which means your borrowing capacity and the property's value can shift between contract and completion.

In Cobram, off-the-plan opportunities are less common than in larger centres, but when they do appear - particularly townhouse developments near the CBD or new estates on the northern edge of town - buyers often underestimate how different the lending process is compared to buying an established home. The time between deposit and settlement can stretch from twelve months to over two years, and a lot can change in that period.

The Valuation Risk at Settlement

The property is valued at settlement, not at contract, which means if the market softens or the development doesn't appraise as expected, you could face a funding shortfall. Lenders approve your loan based on a contract price, but they'll only lend against the lower of the purchase price or the valuation at completion.

Consider a buyer who signs a contract for a new townhouse at $420,000 with a 10% deposit. They secure home loan pre-approval and assume everything is locked in. Eighteen months later, the property completes, but the bank's valuer assesses it at $395,000. The lender will only provide a loan based on the lower figure, which means the buyer needs to find an additional $25,000 to settle or risk losing their deposit. This happens more often than people expect, particularly when multiple units in the same development settle simultaneously and flood the local market.

Sunset Clauses and What Happens if Completion Drags Out

A sunset clause sets a deadline for the developer to complete the project, after which either party can walk away without penalty. Most contracts include a clause between 18 and 36 months, but if the developer requests an extension or the project runs over, you'll need to decide whether to agree or pull out.

If completion is delayed beyond your original pre-approval period, you'll need to reapply with your lender. Interest rates may have changed, lending policies may have tightened, and your personal circumstances might be different. If you've changed jobs, taken on additional debt, or your income has dropped, you could be declined at settlement even though you were approved initially.

In our experience working with buyers around Cobram and the Goulburn Valley, delayed projects are more common in regional areas where smaller developers are operating without the same financial buffer as major builders. A six-month delay can push your settlement into a different rate environment, and if you've locked in a fixed rate that's since expired, your repayments could look very different.

How Lenders Treat Off-the-Plan Differently

Not all lenders will approve off-the-plan purchases, and those that do often apply stricter criteria. Some require a larger deposit, others cap the loan-to-value ratio lower than they would for an established property, and many will only lend on developments from builders with proven track records.

Lenders also distinguish between buying off-the-plan in established areas versus new estates on the urban fringe. A townhouse being built within walking distance of Cobram's main street will generally be viewed more favourably than a house and land package in a brand new subdivision where comparable sales are scarce. Lenders assess risk based on resale potential, and properties in untested locations are harder to value.

You'll also need to factor in Lenders Mortgage Insurance if your deposit is below 20%. Because the property hasn't been built yet, some LMI providers charge higher premiums for off-the-plan loans, and others won't insure them at all. This can limit your loan options and affect how much you can borrow.

The Deposit Structure and When Payments Are Due

Most off-the-plan contracts require a 10% deposit, but the payment structure varies. Some developers ask for 5% on exchange and 5% on completion, others want the full 10% upfront. You'll need genuine savings to cover this, and if you're relying on the First Home Guarantee or a family guarantee, your broker will need to structure the application around the contract terms.

Unlike a standard purchase where your deposit sits in trust until settlement, off-the-plan deposits are sometimes released to the developer in stages. If the developer goes into liquidation before completion, you could lose your deposit unless the contract includes proper security provisions. This is less of a concern with larger builders, but for smaller regional developments, it's worth having a solicitor review the contract before you commit.

What Happens if Your Circumstances Change Before Settlement

Because settlement can be 18 to 24 months away, your financial situation might shift. If you lose your job, go on parental leave, or take on additional debt, the lender will reassess your borrowing capacity and may reduce your approved loan amount or decline the application altogether.

This is where having a broker who understands regional employment patterns becomes useful. If you're working in agriculture, healthcare, or education around Cobram, your income structure might include seasonal variation, shift penalties, or contract renewals that need to be documented properly at settlement. Lenders will ask for updated payslips, tax returns, and employment contracts, so keeping your paperwork current matters.

Should You Use a Sunset Clause to Your Advantage?

If the market has dropped or your circumstances have changed, the sunset clause gives you an exit. But if the property has increased in value or the development has turned out well, the developer might try to extend the clause or cancel the contract to resell at a higher price.

Some contracts allow the developer to extend the sunset date without your consent, which leaves you exposed. If you're not comfortable with that level of uncertainty, negotiate the clause before signing or walk away from the deal. A solicitor familiar with off-the-plan contracts will pick up these clauses during the cooling-off period.

How Empire Finance Structures Off-the-Plan Loans for Cobram Buyers

We work with lenders who understand regional property and are willing to back off-the-plan purchases in towns like Cobram, Echuca, and Shepparton. That means finding lenders who won't automatically decline based on postcode, who'll accept local valuers, and who have realistic expectations about comparable sales in smaller markets.

We also time your home loan application so your pre-approval is valid as close to settlement as possible, reducing the chance of having to reapply. If the development is delayed, we'll manage the extension with your lender and make sure any changes to rates or policy don't derail your settlement.

If you're considering an off-the-plan purchase in Cobram or the surrounding region, call one of our team or book an appointment at a time that works for you. We'll walk through the contract, explain how your lender will assess the loan at settlement, and make sure you're not carrying risk you don't need to.

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