Buying a house is probably the biggest financial decision you’re going to make, so it’s important to know what your options are. Here’s the lowdown on how to finance your new home build.
Saving To Finance Your New Home
- You will generally need 20% of the property purchase price saved as your deposit (but you can borrow with less)
- You will also need additional savings for bank, government and legal fees.
- Check to see if you’re eligible for First Home Buyers Grant.
Mortgage Brokers
- A mortgage broker is someone who specialises in home loans and will negotiate on your behalf with banks and other credit providers to arrange your loan.
- They can be a great source of advice on all the options available to finance your new home.
- They must be licensed. Check by searching ASIC (Australia Securities and Investments Commission) Professional Register.
- They earn a commission from the lender or some may also charge you a fee.
- Given that different lenders pay different commission levels, and some don’t pay any commission at all, this can influence the advice you are being given.
Pre-Approval
- You can also deal directly with banks to secure a loan
- A pre-approved loan (also known as ‘conditional approval’) means the lender approves the loan in principle so you will have a clear budget when starting to talk to your builder
Construction Loan
- When building a home, you’ll need a construction loan.
- Lenders will want to see paperwork (such as council plans and fixed-price building contracts) before approving construction loans.
- These loans allow you to make progress payments (known as ‘draw downs’) at each stage of the building process, which means interest is only being calculated on the amount drawn down so you are only making repayments on the portion used.
- Often, loan repayments will be interest-only during the construction period which can free up some cash for those extra expenses that will pop up.
- Once construction is complete, your loan will then revert to a standard loan.
- Ask for a key facts sheet for each loan you are considering so you can compare interest rates and fees.
Types of Loans
- Variable Rate – the interest rate you pay will fluctuate over the course of the loan so your mortgage repayments can go up and down. The benefit of this sort is you can usually make extra repayments.
- Fixed Rate – an interest rate is locked in for a set period (usually 1-5 years). making it easier for you to budget, knowing exactly how much repayments will be. However, if interest rates drop, you’ll still be locked in at the original rate and you may not be able to make extra repayments.
Builders Finance
- Volume builders can also help arrange finance for your new home build.
- Benefits of this include they take care of the bulk of the paperwork
- They can also offer very low-deposit options.
- However, it prevents you from shopping around for best deal.
Having trouble understanding how to finance? Download our FREE guide today to get a comprehensive overview of what you should expect and prepare for.
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