If you’re considering purchasing a new house, the first decision you’ll likely make is whether to buy or build. Each option delivers numerous benefits and plenty of drawbacks: Buying can be faster, simpler, and typically allows easier entry into already developed neighborhoods while building allows for greater customisation, minimises stamp duty, and is often incentivised by governments.
If you’ve considered the pros and cons of each and landed on the latter option, then a house and land package might be for you. But that’s not the end of the decision-making process. Beyond working out where you want to live and how you’ll get your hands on a house, you’ll also need to contemplate what you’ll buy – a turnkey or standard house and land package – and how you’ll finance your purchase.
So, without further ado, here’s all you need to know when buying a house and land package.
What is a house and land package?/h2
Property developers often purchase large plots of land and offer bite-sized bits to the market, packaging them up with the promise a house will be built on the property. This is a house and land package. Snapping up a house and land package can be a simple process, particularly when compared to the alternative: buying a parcel of land from a developer and finding a builder yourself.
There are two types of house and land packages:
Turnkey packages provide a house that is completely ready to become a home. Those moving into a turnkey house won’t be required to complete any further work on the property. It quite literally means you can turn the key, plonk your bags in the hall, and start living in your new home.
On the other hand, a standard house and land package will see a buyer purchasing the land first with building to begin at a later date. This option allows for more customisation of the home compared to a turnkey package. However, things like landscaping and fencing might be left up to the owner to complete. It also means a buyer can purchase the land on which they’d like to build and let the dust settle before starting the construction process, which could be easier to manage financially.
In both cases, the builder and developer will work together to construct the home, with the developer also taking charge of completing surrounding roads and other infrastructure.
Taking out a loan for a house and land package/h2
How you finance your house and land package will likely depend on the type of package you purchase.
When it comes to financing, a turnkey package is once again arguably the simplest option. Financing a turnkey package can be as easy as signing up to a normal home loan. That means a buyer will probably need a 20% deposit in order to avoid Lenders Mortgage Insurance (LMI). If you’re willing to pay LMI, or if you’re leaning on the the Home Guarantee Scheme, you’ll likely be able to sign up to a home loan with a deposit as small as 5% (or 2% if you’re eligible for the Family Home Guarantee).
Financing a standard house and land package can be a vastly different beast. There are two separate components to doing so, which you may choose to bundle with a single lender. First, you’ll have to finance the purchase of the vacant block of land using a land loan. The deposit required to do so might be dependent on the size of the land and the lender. But again, you’ll typically need a deposit of at least 20% to avoid LMI. It’s also worth noting that this is the only portion of the home-buying process on which you’ll pay stamp duty – a notable benefit over buying a pre-existing house. The second component you’ll need to access finance for is for the home itself, which will probably require a construction loan.
Construction loans are specifically designed for people building or renovating a home and, therefore, function quite differently to a normal home loan. Construction loans typically ask that a buyer makes interest-only repayments for the duration of their build or renovation, with principal repayments to begin once the build is complete. On top of that, a person taking out a construction loan generally only pays interest on funds as they use them. So, if each stage of the building process costs $20,000, a buyer might pay interest on $20,000 during the first stage, $40,000 in the second stage, and $60,000 in the third stage, and so on and so forth.
It’s also worthwhile checking to see if your state or territory offers any incentives for people building a new home. In an effort to increase housing supply, some offer grants for first home buyers building new residences. Not to mention, the Federal Government’s Help to Buy scheme can provide an equity contribution of up to 40% for new homes, compared to a maximum of 30% for existing homes. Making the most of such grants and schemes could help take some of the financial pressure off of buying a new home.
Some of the market’s lowest rate construction home loans/h2
If you’re in the market for a construction home loan, you can find some of the most competitive deals available right now in the table below.
“Guide and tips on buying house and land packages ” was originally published on Savings.com.au and was republished with permission.
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