Home Building Loans
A loan to build a new home is known as a Construction Loan. Initially Construction Loans are a little different to your standard home loan. Unless you already own your land there will be two stages.
The first stage of a Construction Loan is to buy your block of land, and the second is for building your house. Initially you will only have a loan for the land and will make repayments on that portion only.
How Does A Construction Loan Work?
A Construction Loan must be on a variable interest rate basis until the build is complete. When you apply for a Construction Loan you need to provide a quote from your chosen builder or home building company and a copy of the house plan. You also need to provide quotes for any other work to be completed, such as a driveway or landscaping. During their assessment of your application the lender may complete a property valuation using the house plan you provided.
After your Construction Loan is approved and settlement has taken place, you continue to only make repayments on the land portion of the loan until the building work commences. Once your house build is underway the building company will require payments, so progress draws will begin. Your Construction Loan balance, and therefore your loan repayments, increase with each progress draw until the house is built.
As you near the end of the build you will be paying almost your full mortgage repayment. If you are renting you will still be paying rent, but unable to move into your new home just yet. Keep this in mind when budgeting for building a new home. If it's an option for you, moving in with relatives for the last 3 to 6 months of a new home construction can really ease the pressure on your finances.
What Are Progress Draws?
Once your land and building loan is settled the exciting part can commence, the construction. As your new home is built your builder will ask for payments in stages. These stages will be outlined in your building contract, they are usually called the 'schedule of payments'. An example of a typical schedule of payments is below. These staged payments will be paid by your lender to the builder and are known as progress draws or progress payments. With each progress draw your mortgage increases until the home is complete and your loan is fully drawn down. So you will not pay for the whole loan balance throughout the construction. Instead your loan balance and repayments increase as the house is built.
Example Schedule Of Payments
Here is an example of the percentage of funds required by a builder with a five stage schedule of payments:
Stage 1: Slab or Foundations Complete 20%
Stage 2: Frame Complete 20%
Stage 3: External Lining Complete 30%
Stage 4: Internal Lining and Lock Up 20%
Stage 5: Practical Completion 10%
Get A Construction Loan With A Commission Refund Each Month
Building your own home or investment property is an exciting time, and there are so many choices to make. We can make the choice of home loan easy. Get a great construction home loan deal plus a commission refund of at least 0.15%p.a. each month for the life of the loan.
Owner Builder Home Loans
So you want to build your own home? Being an owner builder is hard work but immensely rewarding. Finding the block of land of your dreams was the easy part, now comes the hard work. Finding a bank or non-bank lender to finance the build can be difficult on your own. Not all lenders will consider an owner builder for home building loans, and those who will usually have some additional restrictions.
Typical additional requirements for owner builder home loans include:
- A limited timeframe to complete the build ranging from 6 to 24 months
- Detailed costings signed off by an independant advisor such as a quantity surveyor, architect or local building advisory service
- Owner Builder Construction Risk Insurance
Some lenders will offer building loans australia wide for owner builders. However the more remote your block of land the fewer lenders will consider it, and the higher your required contribution will be. Finding a lender who will offer owner builder loans can take quite a bit of research. The best place to start is with a home loan broker. Brokers have access to numerous lenders and can discuss lending policy with their contacts to find out who will lend you the funds you need. Be prepared that most lenders who offer owner builder home loans usually will not lend more than 60% to 70% of the value of the property, and it can be as low as 40%.
Get Your Building Loan Sorted
Contact us to find out how much you can borrow for your land and building loan to get your dream home started.
First Home Builders Grant
In each state and territory the state government offers a first home builders grant and transfer duty exemptions or reductions. Your solictior or conveyancer can help you apply for these incentives. The transfer duty (also known as stamp duty) exemptions or reductions are applied at settlement, or prior to settlement if there is a long settlement period. More information about the First Home Builders Grant and incentives available in each state is available here First Home Buyer Information.
Why Is It Difficult To Get An Owner Builder Home Loan?
Let's be frank, Owner Builders are not a banks preferred clientele. A lot can and does go wrong for the rookie owner builder. From underestimating the time is takes to owner build while holding down a day job, to impulse purchases for that thing you 'had to have' eating away the budget for the final stage.
When customers seek loans for new homes mortgage brokers begin in much the same way they would for a customer buying an established home. You will still need to provide evidence of your income, expenses and deposit. However, if you are a tradie and want to do some of the work yourself, the lender will take into account whether your building project is possible without affecting your income.
We've all seen that place down the road, wherever it is you live, the house where the guy started building it himself but ran out of money. Then the wife packed up the kids and left, and he never could quite finish it. Banks don't back deals with bad odds. So while it may seem restrictive to have to meet their extra requirements, it will be in your best interests in the long run. They want your build project to reach completion, and they may just keep you on track.