New Homes & Construction Loans

Saturday, June 27, 2015

Over the last 18 months, our hot property markets have been driving rapid increases in home values, particularly in larger markets like Sydney and Melbourne. This has placed established properties beyond the reach of many home buyers and as a result, we have been seeing a corresponding boom in new housing construction across the country.

For the year from March 2014 to March 2015, there were 210,484 new dwelling approvals which is a healthy 11.2per cent increase over the previous year. And whilst the most recent figures for April this year show a slight decline in apartment approvals, there were 10,130 new house approvals which was an increase of 4.7per cent over the previous month.

New HomesThinking of building a new home? Talk to us. 

From these figures, it’s clear that more and more people are finding it attractive to build a new home rather than compete in today’s hot property market for an established house or apartment.

And why not? Building your own home not only has the potential to save you money, it gives you the opportunity to get the home you’ve always wanted – one that’s tailored to your personal needs and requirements with all the bells and whistles you may not be able to afford in an established home at today’s prices. New homes also help you plan your finances with confidence, with low maintenance costs and no major repair expenses in the foreseeable future.

Obviously there are some drawbacks to building a new home, compared to buying an established property. The construction process takes time and you may have to wait a while before you can move in. Additionally, if you’re building in a new housing estate, it may be some time before features like schools and shopping amenities catch up with the measure of convenience you’re currently enjoying in an established suburb.

Financing a new build is also a bit different to financing for an established home. Instead of a straight forward mortgage, you may wish to consider a Construction Loan product that can help take the hassle out of the building process.

Construction Loans – how do they work?

With a regular mortgage, you pay a deposit and the lender pays the remainder at settlement in a lump sum – it’s fairly simple and straight forward. Construction Loans differ from regular mortgage products as they pay for the project in stages, paying your builder as construction progresses through each stage – slab, roof, lock-up and completion. Additionally, Construction Loans usually last for the period of construction only.

The major benefit to a Construction Loan is that you only draw down on funds as you need them. This can mean big savings on interest as you only pay interest on the money you use at each stage. And once construction has been completed, you can often nominate which home loan product the Construction Loan will revert to, moving forward – ie. A standard variable rate loan or a fixed interest rate loan.

Another thing to take into consideration when building your own home is purchasing the land. If you purchase the land first, you will usually require a regular mortgage for the land portion of the purchase and then apply a Construction Loan to the build only. The loans can be arranged separately, but are usually bundled together, particularly with a house and land package deal you may purchase from a developer.

There are quite a few different Construction Loans on the market and each of them can be structured differently. We’re here to help you obtain the best loan product/s for your individual needs, so before you commence the process of building your own home, it’s wise to spend a little time with us to get the right financing lined up for your needs.

What else do you need to think about?

Just as with a regular home loan, you will require a deposit before you can commence building your dream home. The amount of deposit you need will vary according to the cost of the project and the lender’s requirements, so you should talk to us about how much of a deposit you will need.

Before you commence your build, you should also be very careful to establish exactly what is covered for the price, as there could be other expenses that you need to budget for. We recommend that you also have some contingency funds set by, just in case of unforeseen expenses that may not be covered by your Construction Loan.

Talk to us for more information

Building a new home may be a great idea for you and your family, depending on your personal financial situation and circumstances. If you’d like to find out more, or explore your loan options and establish your budget for a new build, why not give us a call? We’re here to help you discover if building a new home is a viable option for you and to help you get pre-approval on a suitable financing package before you begin. A short chat could help to take a lot of the hassle and uncertainty out of the process, so why not give us a call today?