Finance for land and construction
Buying land and building your home on it can be the perfect opportunity for investors and first home buyers alike.
When you buy a house and land package, you’re purchasing the land from a developer and signing a construction contract with a builder to complete your home. The cost of the final product is usually pre-determined and includes site variables.
When you buy land, you’ll pay a 5-10 per cent deposit upfront along with stamp duty on the cost of the land. One of the biggest advantages of building your home is that stamp duty is only paid once, only on the price of the land. If you are a first home buyer, second home buyer or investor, you may be eligible for stamp duty concessions. Concessions vary from state to state and your Boss broker can tell you what may apply.
You'll need to pay your deposit either from savings or a deposit bond. The remaining balance you owe on the land will be paid 14 days after the land is registered. If the land is already registered, then the balance will be paid 56 days after the contract of sale has been signed.
Pre-approval for purchasing land
We strongly advise that you get a pre-approved loan before you start shopping for land. Pre-approval will give you a clear budget. Your Boss broker can advise you on the type of loan that best meets your financial situation and fits within any time frames you may be working toward. If the land is registered, a land and construction loan can be applied for in the one application, as opposed to two loans (one for construction and one for land) if the land is unregistered.
Paying for your property's build
If your land is registered, you will need only one loan. Once the land is your property and settled, you will begin making mortgage repayments against the land loan amount. As construction starts on your property the bank will make progress payments to the builder and your mortgage repayments will go up each time a progress repayment is made. In most cases there are 4-6 progress stages in the construction of property before it is completed.
Once your property is completed you will be making loan repayments on the full amount of your construction costs and land.
If the land is unregistered
If the land is unregistered you will need separate loans. First you will need to organise the loan for the land and once the land has settled, you will begin making mortgage repayments against the land loan amount. The loan you need for construction should be applied for once you are ready to commence construction on the land. After a construction loan has been approved the lender will issue an ‘Authority to Commence Construction’ to the builder who will start the construction of your property.
As construction starts on your property the bank will make progress payments to the builder and your mortgage repayments will go up each time a progress repayment is made. In most cases there are 4-6 progress stages in the construction of property before it is completed. During this time you will also be making repayments for your land loan.
Once construction is completed your Boss broker will refinance your land and construction loans into a single loan. The biggest advantage of doing this is that you may see an increased valuation based on a completed property value rather than the construction amount.