Financing a house and land package

Buying a brand new home is very appealing to many home buyers. It’s a great way to get exactly the home you want. It can also mean that there are no unexpected surprises when it comes to the cost of home maintenance and this can make it much easier to budget in the first few years that you own your home.

One of the options when looking for a brand new home is to buy a house and land package. With many new housing areas being developed by professional property developers, you may find them also offering you ‘easy’ finance options as well as the house and land. However, like most mortgages, it is more advantageous to shop around.

If you’re considering buying a house and land package deal, make sure you talk with us before you sign on the dotted line! We have an Inhouse Finance team that will do all the legwork for you and provide you with a number of financing options for your house and land package, with loan features tailored to suit your personal goals and financial situation.

What’s involved with buying a house and land package?
Financing for a house and land package usually consists of two steps: buying the land and then building the house. Loans need to be arranged for each of them, but can usually be bundled together with the one lender.

To build the house, you will also require a construction loan. This is a specific type of loan that allows you to draw down on the loan at specific stages of the build. It also means that you don’t have to start paying interest on the entire loan straight away, you only pay interest on the money you’re using at each stage.

Typically there are four or five stages of the build, when you will have to draw down on your construction loan:

– Building deposit (which has to be paid before construction will start)
– When the concrete slab (or flooring) is laid down.
– When the walls/roof are erected.
– When the house is capable of being secured, or ‘lock up stage’, and
– Upon completion of the project.

During the construction period, the loan is often interest only which can save you money on your repayments whilst your home is being built. If this is the case, once the home is completed, the loan may revert to principal and interest.

Some benefits of house and land packages
Financially speaking, you may find it easier to get into a house and land package deal than an established home. You may need less savings because you don’t need to pay stamp duty on the house component of the purchase. That’s because stamp duty only applies to established homes. (Please note that in NSW no stamp duty is applicable if the property is going to be owner-occupied).

If you are a first home buyer in WA, you may be eligible for the $10,000 first home buyer’s grant in your state as well as NO Stamp Duty for land purchases under $300,000. Both of these benefits can substantially reduce the size of the deposit you need, or perhaps, the size of the loan you need to take out. Don’t forget to ask us to help you calculate how much you could benefit from the first home buyer’s grant.

Trips and traps
Even though you are technically buying your land and house separately, you will need to have a deposit ready for both parts of the purchase when you purchase the land. The lender will usually require you to be ready to contribute your portion of the total purchase up front, before they will approve your loan/s. When it comes time for you to begin drawing down on the construction loan, the bank will contribute the building deposit without any further deposit contribution being required from you.

But before you decide to go ahead with your house and land package, it’s important to sit down and carefully work out exactly how much it will cost to complete the project. Ask the developer exactly what is included in the build as there could be other considerations that you need to include in your budget. For example, is fencing, driveways, landscaping, carpets and clotheslines included in the price, or will you have to find money to pay for these items separately?

Remember that in addition to the cost of the land and the build, there will also be other expenses. Consider bank fees, legal fees or conveyancing costs and so on. Talk to us about these additional costs and we can help you to work out your budget.

Please note that the information in this article is general, so you should have a chat with us about your specific house and land package purchase and financing options before you make a commitment with the developer to go ahead. It’s always wise to be informed before you make any kind of financial decisions and we are here to help you make the right ones. If you’re considering getting into a house and land package deal, just call us because we’re here to help!