Building my new home

If you are thinking of building a new home then here are a few helpful tips to assist you in understanding the financing process. The overview provided is not comprehensive and is intended only as a guide.

If these tips only help you to ask the right questions of the builder, developers or lenders it would have been a worthwhile exercise. Please refer to a Multi-Choice Mortgage Broker for further assistance.

The Developers or Builders may offer two different packages:

PACKAGE 1

The house of your choice is built on the developer’s land which you purchase and finance once construction is complete. The developers will generally insist on non-refundable deposit for you to secure the purchase and construction. No progress payments or further monies are expected from you until the construction is complete. At that point you complete the purchase by making the necessary arrangements with your lenders to pay the balance of funds to the developer.

Advantages:

The developers will complete the project without delay to save on any interest charges to fund the project. I.e. on his funds borrowed on the land purchase and the construction costs.

  • The risk of default by a private builder is minimised
  • You don’t pay interest on funds borrowed since the loan is not in place until you take possession. An attractive thought if you are unable to afford the loan repayments plus existing rent.

PACKAGE 2

You choose the land you want and purchase it from the developer. You might need a 5% or 10% deposit depending on how you present the loan application to the lender. Please consult one of our friendly consultants of Multi-Choice for some assistance. The balance of the land’s value is to be paid upon settlement, after which the builders can commence construction.

The difference here is that you take ownership of the land prior to construction. That means you will pay stamp duty on the land to take transfer and will probably need a “land loan” unless you have sufficient equity in a property that you have sold. Importantly, only once you have taken ownership of the land will the lenders be prepared to release approved funds for construction. Simply, there is no sense building on someone else’s land! What if transfer never takes place? The lenders will have no security property to rely on and have no legal recourse.

During the course of construction, the builder normally insists on progress payments. These payments are made at various stages of the construction e.g. slab down, framework erected, roof complete, flooring and tiling complete and lock-up.

Advantages:

  • You will generally have more choice in the design of the home.
  • You have more control in the finish and standard of workmanship since payment is made only if you are happy.
  • Stamp duty costs may be lower since you only pay transfer fees on the land component.

Speak to a broker today

Book a free appointment
Or call 1300 36 36 99