Building your own house can be an exciting prospect. For starters, you get to own something that has not been changed by someone else and is uniquely what you want. Not to mention that you get creative control over the plot of land, the floor plan, the main features, and the overall feel of the structure.
While it might be hard to avoid unforeseen expenses when achieving your home goals, educating yourself beforehand can help you build that extra cushion and stick more closely to your budget. Here we’ve listed potential costs you should know about:
Deposit
If you’re considering getting into the market to become a first time home owner, there are many important considerations you will need to make. Among the most crucial of those is determining how much of a deposit you will need to build your first home.
Before you fully dedicate yourself to browsing and comparing house plans, you should be aware just how much you can safely spend on your new home. Don’t rely merely on tips from family and friends. Neither should you depend on the total transparency of your banker or lender. Make it a point to talk to your financial advisor or accountant. Also, expect to go over by at least 10 percent of your estimated budget.
Home Loan Fees
When looking for a mortgage, it’s important to compare different home loan packages and study the extra charges that apply to each product. While it will indeed vary from bank to bank, lender to lender, some banks will be prepared to provide you with a loan that sits around the 20% mark, while others will be less generous with as little as 5%.
Look out for packages that don’t have any application fees. Mortgages that have low or no upfront fees may not have all the inclusions you need or may have higher ongoing interest rates. We suggest you speak to our friends at UNO Home Loans who can compare options from up to 25 different lenders, both small and large mortgage providers.
Construction Home Loan Versus Regular Home Loan
A construction home loan can provide one of two options – a fixed or variable option. Again, this depends on the lender and the loan product. Generally speaking, the majority of lenders should offer you the same or similar interest rates for either loan. The key difference between the two is that money is drawn down in stages as it is needed.
Stamp Duty
Apart from registration and taxes, there are a few other government fees you should look out for such as stamp duty rates, which vary from state to state. In the case of a new house design and building, you need to pay stamp duty only for the land so it will be cheaper than if you’re buying a finished structure. If you are interested in learning more about concessions you may be entitled to, make sure you check out this article.
Legal Charges
Since there is no official amount for conveyancing, rates will vary between conveyancers and solicitors. You will also be charged for disbursements in addition to legal service fees. To have a realistic idea of the total amount you’ll be paying the advisor, request an itemised statement of account. For a fixed cost to conveyancing, you should definitely speak to Titlexchange. They offer fantastic options for your conveyancing needs, as well as building contract reviews.
Lenders Mortgage Insurance
You are likely to incur this if you are borrowing over 80 percent of your loan. This is paid directly to the bank since your loan would be carrying more risk to them. You may be required to pay this upfront or it can be added to the loan. Just ask your mortgage broker or bank about the details. It is worthwhile noting that saving for a few more months may be better as you would avoid paying Lenders Mortgage Insurance and have more money for the actual price of your dream home.
Interest Repayments
Whether or not you’re going to be moving into the new house soon or not, you need to start paying the loan in accordance with the terms you agreed with your mortgage provider. If you cannot relocate right away, this could mean that you will be paying both your rent and mortgage.
So, do consider carefully any mortgage you take out, especially its interest rate and its payment structure. Largely depending on which state you’re building in, first-home buyer concessions can help cut down on a number of the additional costs typically associated with buying a home. The idea is not to saddle yourself with costly loan repayments in the months to come.
Road Closure Fee
Here is yet another government fee that you may incur. However, this only applies if the builders are required to interrupt traffic or close a road during construction. The building company you’ve chosen through iBuildNew should be able to provide you with the details regarding this. Or, you can ask your state government or local council about it.
Building your dream house involves a lot more than browsing through home plans. You need to think about your budget and prepare for any hidden costs you encounter along the way. It is also easy to be overwhelmed with the chunks of information and jargon you are bombarded with right away.
This can be tackled by having a firm understanding of the terminology and acronyms that you will come across by reading contracts, in conversation with a real estate agent or even when discussing loans with the bank. We have provided a few key terms to get you up to speed and ensure a smoother investment process.
The Property
PPOR stands for the principal place of residence where you’ll be staying. This is used to clarify whether a property is going to be utilised as a home to live in or an investment to rent out.
Equity is essentially how much of the property you are able to claim ownership of. This can be calculated by deducting the amount left of your home loan from the market value of the property.
Body Corporate Levy are the payments you make towards the property costs of the building or apartment complex. This can include maintenance, insurance, security and general upkeep.
Stamp Duty is a term you’ll hear a lot of as it is the tax, carried out by the Australian Government, that comes along when purchasing real estate and in addition to the investment price. The tax paid will be based on the cost, location and the reason for buying the property.
Site Costs usually apply to items that are not included in the quoted base cost. They cover factors such as earthworks, site preparation and the engineering requirements for the foundation of the house. If you’re comparing site costs between builders, make sure you understand exactly what you’re being charged for!
Building Design Guidelines refers to what is permissible to build in the precinct with detailed guidelines that builders are required to follow through.
A Property Covenant can guide or restrain how you build or alter your property. It can be found on the contract of sale, but most commonly within a land’s certificate of title.
Home Inspection is a highly recommended step that refers to a thorough professional examination that evaluates the structural and mechanical conditions of a property. First home buyers are eligible for a discount on home and building inspections if they are also RACV members.
Contract Of Sale is a written agreement that outlines the terms and conditions, the purchase price, length of time until settlement and any other conditions.
Conveyancing is the legal process of transferring title/ ownership of a property…which takes us to our next term –
A Conveyancer is a licensed and qualified professional who gives you advice on your property, prepares documentation and conducts the settlement process.
Cooling-Off-Period generally applies to contracts for the sale of residential properties that were purchased outside of an auction.
Certificate Of Title is the official legal document of title, showing who owns the land. It will describe the area and location of the land, list the registered owner as well as any mortgages or interest that are on the land.
The Finance
Grants are available in each State and Territory of Australia to help certain first home buyers with funding their property purchase. The First Home Owners Grant is a one-off payment eligible for first home buyers who purchase or build a residential property to live in.
Borrowing Capacity is all about how much you are allowed to borrow and it revolves around your present financial status and current income.
Pre-Approval is one of the beginning stages of the loan process when a lender confirms how much you are able to borrow, under specific terms and conditions. This is thoroughly assessed on the basis of your income and other factors that can ensure your credibility as a borrower.
P & I means principal and interest. For homeowners, they can opt to take out an interest-only loan while others prefer to join the principal, also known as the home price, and interest loan together.
Interest Rate involves the payments that are required to be fulfilled in exchange for the bank or other financial institution providing you with a loan.
Default is the payment that is incurred when you are unable to make a repayment on the due date.
Switching Fee is what is paid in order to change the type of loan you take out.
Progress Payments are part payments that are made to your builder as the home progresses. Instead of paying it all upfront, you pay it in agreed instalments. However, before you pay, make sure the stage has been completed properly and to your satisfaction.
The Lender
Offset Account is one of the ways to reduce the interest costs as it is an account which is linked to your home loan. In addition to bringing down the amount of interest you pay back, you are able to put your savings to good use.
Comparison Rate is the interest rate combined with the loan’s additional fees and charges.
Honeymoon Rate is cheaper as it has a lower interest rate to get you started for the first 12 months and then it resumes to the normal rate.
Lender’s Mortgage Insurance (commonly known as LMI) is taken out by the lender to protect them in case you default on your mortgage. However, you are expected to pay this and can be avoided by being ready to deposit more than 20% of the total cost.
Loan-To-Value Ratio refers to the proportion of money borrowed versus the value of a property.
There’s definitely plenty of factors to wrap your head around but fortunately for you, we’ve got you all covered here at iBuildNew. We work with some of the top builders in the country so you can be sure you get a house design that suits your tastes and needs. We can provide you with all the information you need whether you’re a first home builder or seeking to purchase an additional property.
1800 184 284
