Building a new home? How to finance it

There’s something thrilling about building your very own, brand spanking new home!

Perhaps it’s the knowledge that everything will be fresh and new and you’ll be the very first occupant , or the freedom that comes with being able to design the property to suit your own tastes and lifestyle needs. Always dreamed of having a lap pool? Why not! Like the idea of a home studio? Let’s make it happen!

When building your own home, there’s a new chapter to begin, new adventures to be had and new memories to make. So, whether you’re planning on doing the building yourself, or you’re purchasing off-the-plan, talk to Blue Key Finance about securing the right finance.

Building your own home

When you build a new home, the right loan could potentially help you save a lot of money on interest. For example, a construction loan allows you to borrow in stages, while your home is being built. Rather than providing the full loan amount at once, the lender will break the loan down into “progressive draws”, and pays these to the builder in stages throughout the construction process. This arrangement means you only have to pay interest on the loan amount you have actually used.

Your lender will usually require council approved plans and a fixed price building contract before they will approve a construction loan. The lender’s valuation expert will use these to help estimate the on-completion value of the property, and the lender will then assess the final loan application on whatever is less – the land price and cost of construction, or the on-completion value.

The advantages of construction loans

With construction loans, you only pay interest on what you’ve actually drawn down, not the maximum loan amount you’ve signed up for. What’s more, loan repayments are usually interest-only during construction.

As each phase of construction is completed, the lender’s valuation expert usually inspects the building progress on behalf of the lender and then authorises the next draw down on your loan to pay the builder. Then at the end of the construction process, you can choose the type of loan you’d like to use moving forward – this could be a fixed interest rate loan, a ‘principle & interest’ repayment loan, variable interest rate loan, or another type of loan, depending on your circumstances and objectives.

Perhaps the biggest benefit of a construction loan is the way your builder is paid. Construction loans help to give you a level of protection, because cash is not paid to the builder until the work is completed and inspected at each stage. This can often help to prevent construction falling behind schedule, or potentially aid in early detection if there are any issues with the build or the quality of the work.

Some lenders charge a slightly higher interest rate for construction loans or a large Bank fee, so it pays to ask us to shop around our panel of lenders. Talk to Blue Key Finance and we’ll ensure you have the right kind of construction loan for your particular needs and are fully aware of exactly how much it will cost. If necessary, we will advise you to use another loan alternative, like setting up a line of credit facility, for example.

Buying off-the-plan

Buying off-the-plan is a term used to describe a home from a developer before it has been built. If you’re buying property off-the-plan, you’ll only have to pay the 10% deposit upfront and what’s remaing once the property is completed. However, organising your finances may not be quite as straight forward as with purchasing an established home, as there is usually a considerable period of time between paying your deposit and final loan settlement. You will also need to get advice from a Solicitor regarding the details in the contract for your off-the-plan home purchase, to make sure you and the developer are on the same page regarding what the price includes before you sign the contract.

As your Finance broker, we are here to explain the process of buying off-the-plan, help you line up your professional team, and help you find the most suitable loan for your needs and objectives. We can also help you arrange your deposit, whether it’s in the form a bank guarantee, deposit bond or cash, and oversee the whole payment process for you. It’s also very important to organise a preapproval through us with your chosen lender before construction of your off-the-plan property begins, so do give us a call before you sign on the dotted line.

Click here Explanation on financing your House & Land Package to access your FREE five page comprehensive PDF version of this blog article. This document will cover off on:

• Funds disbursement process with construction loans
• Documents your bank will require before they start releasing funds towards the construction
• Documents your bank will require before they pay the final progress payment
• How to request a progress payment
• Typical progress payment stages
• Construction loan process map
• Holding costs explained