Getting finance to build your new house

Now you have made the decision to build your dream home, with visions of a spacious modern kitchen, sinking into a luxurious new bath, walk-in wardrobes and more, you can’t forget the necessary step of financing.

You have found the block of land, in an area you want to live in, you have a hefty Pinterest board of living spaces, garden plans and colour palettes that you want in your dream home, but do you know if you can afford it?

Your mortgage will make up a large part of your family expenses for the next few decades, so it is important to get a sense of how much you can realistically afford to repay now and also down the track. Here are some points to consider very early on in the process – what you need to know and do to make the mortgage process smoother.

Are our credit reports and tax details all up to date? What are our loan options?

What can we afford to pay in the way of a mortgage? This is one of the biggest questions of every person looking to build their own home.

Affordability

It is important that you calculate how much you can afford now and in the future. You need to include the costs of purchasing the land, the build, the size of the deposit you can afford and the amount you can comfortably repay each month after your other lifestyle expenses and commitments.

Make sure you include all possible expenses, such as government, bank and legal fees, various insurances you may need, as well as all of your usual financial commitments month-to-month, and possible expenses such as starting or growing the family. If you have it, make sure you have a deposit of 20%. Banks are otherwise likely going to charge you Lenders Mortgage Insurance, which contrary to popular belief, protects the insurer – not you and your family.

When talking with a mortgage broker or lender about your financial commitments and plans for the future, be sure to be open about all of your financial commitments, as it can be tempting to hold back in the hope they will lend you more. This could end up in heartbreak if you sign up for a mortgage that you can’t afford to repay down the track.

When a lender looks at your finances, they will consider your regular expenses and debts as well as factor in the potential impact of interest rate increases on your repayment ability. It is also wise to protect your home and family in the case of the main breadwinner being made redundant or sick, by including mortgage repayment insurance and other insurances.

Loan Types

There are lots of types of loan on offer and it can be quite overwhelming to start looking for the right loan for you. More traditional home loans are mortgages on an existing house, and generally last for about 30 years.

However when you are building a house from scratch, it is considered best to take out a ‘construction loan’. They work differently to other types of loan in that a construction loan pays out in stage, so you only pay interest on what you use, as you use it.

When talking with different lenders, beware of ‘honeymoon’ rates that are offered by banks, and so-called ‘cheap’ loans that often have higher fees, and can be inflexible if you want to make changes or exit the loan. Look for a loan offset account to help lower the interest you pay. Getting the right loan is imperative, and Better Built Homes recommend engaging a reputable, independent mortgage broker to help you. Take your time with find the right broker or lender for you, and do as much research as you can before making your final decision.

Make sure that you read through everything your broker or lender asks you to sign, ask questions and make sure you understand what you are about to sign.

Making Payments

In making payments during the process of tender, contract and build, the initial payments, for example the $3-5k deposit to your selected builder to draw up the tender and the 5% payable when you sign your contract, both come from your deposit.

The bank will then begin to make progress payments once you have paid your contribution, and once they have seen various important documents such as the fixed price contract, council approval, and the builder’s insurance policy.

From there, your loan is available to you when you need it. It can be tempting when you get approval for a large sum of money to loosen the purse strings and in the excitement feel it isn’t too much to get that new car right now, or go on that cruise you have been talking about. But take pause, and after a couple of weeks the excitement turns into practicality, which is very useful.

While you are building your new home, keep on track of your other expenses, such as your mortgage for your other house if there is one, so there are no nasty surprises along the way, like a missed payment.

Although the process of getting finance can feel overwhelming, with a trusted broker or lender, and forming the right team around you, everything will fall into place.

We at Better Built Homes have experience in pulling the right team together to build your dream home in Western Sydney. If you are thinking of building in Western Sydney give us a call on 1300 100 922 (between 9am and 4:30pm Monday to Friday) to chat about your ideas and make a time to come in to the showroom, or fill out our online contact form with your enquiry and we’ll get right back to you as soon as possible.

Our office and showroom is located at:

Unit 21, 9-12 Lambridge Place, Penrith NSW

Note: Some handy links to assist you with your research into financing your new home below:

Choice Magazine – reviews and tests.

Your Mortgage – detailing types of home loans.

Loan Market – demystifying construction loans.

Holler Box