Hot Tips For Home Construction Loans
The idea of owning a brand new home as your first home can be very exciting. But taking on the task of building a new home can also bring stress - issues inevitably arise during the journey. We’ve helped many clients through the process and know the common pitfalls that can be easily avoided with a bit of care. Here are our hot tips for when you’re building your own home.
House and Land packages
It’s common language used across the building industry, but it can be very misleading. The ‘package’ part is often a builder’s plan, built on a developer’s block of land. In the majority of cases there are no issues, but it’s important to be aware of timings. The developer might want you to own the land in 60 days’ time, but the builder might not have your building contracts ready until the 60th day. In this situation, you might need to achieve the land ownership first, to then go back and have building finance approved after land settlement.
When seeking pre approval for a house and land package, we pre approve a client upfront for the whole journey, however if we need to buy the land first to then return for building finance, we need to make sure that the ‘end result’ pre approval isn’t jeopardised.
The bank will want to see savings in an account, 5% of the complete house and land value. You can run into issues when you need to own the land first, and then source building finance at a later stage. When sourcing the building finance, there’s a high chance the first home owner grant will be already utilised as part of the funds to complete. The bank will want to make sure there’s still 5% savings in the bank account, despite having $10,000 in the first home owner grant and money now spent on fees related to the land ownership.
We always need to be mindful of valuations – it’s not guaranteed that if you spend a certain dollar amount on both the house and land that a valuer will agree your end value is going to the same. Most of the time it’s not an issue, but if you start to upgrade on a few features then you might overcapitalise on your value. If a valuation comes back lower than the actual purchase amount you can still proceed with finance, however you’ll need to utilise cash for the difference on top of your normal contribution requirement.