So, you have started the exciting journey to owning your first home. In your mind you can picture your dream home and where it will be, but how do you get there financially? If you are a first home buyer in Australia, chances are you have looked at several house and land packages in Perth. But how does it work? How much do you need to pay right away? Let’s break it down…
What is a house and land package?
Most of the new home construction these days is done by property developers, who secure the land when the Government releases it and then lay down the necessary infrastructure (such as roads, utilities, water, etc.). These developers then do one of the following:
- Build the homes and sell them as a complete house, also known as a ‘turnkey’ package, or
- Offer you a number of customisable home designs and options, so that you have more creative control in choosing the block of land you want, and the features you want in your new home.
Turnkey homes tend to be a bit more expensive but enable you to move in straight away.
If you do not want to sacrifice on the design of your home or want to customise your build, you can apply for a house and land package deal, which are bundled together. This package offers excellent value and freedom of choice; however, you are usually required to begin the construction within two years of the acquirement of the land.
A benefit of buying your home this way is that you can ensure the property not only suits your needs, but can also help you plan your future finances with confidence, knowing you will have next to no maintenance costs or repair expenses in the foreseeable future.
Payment of a House and Land Package
The financing for a house and land package usually consists of two steps, buying the land and then building the house. Loans can be arranged separately, but are usually bundled together, making it easier for you.
To break it down, the purchase of the land is a standard transaction with a ‘regular mortgage’, and the second step requires a ‘construction loan’, which relies on progress payments that cover each stage of building, with payments sent to your builder as each stage of work is completed.
Developers will usually require a 10% deposit before construction begins on the build.
The remaining funds loaned for your house and land package will be drawn out in stages as the build progresses with interest-only being paid on the outstanding balances, rather than the maximum loan amount, making it better for you.
Lenders will pay your builder directly as each stage progresses and the way these payments are made will differ whether you are borrowing from a bank or Keystart. So how is Keystart different from a bank? More on that in a minute.
Firstly, How Much Can You Borrow?
Whether you are buying the land first, or a complete house and land package, you can generally borrow up to 95% of the value of the property. The value is usually calculated by adding together the purchase price of the land plus the cost of construction, or the valuation completed by the lender, whichever is lower.
Now, what is Keystart?
Keystart home loans offer a variable interest rate loan, with lower entry costs, available to first time home (and subsequent) homebuyers in WA. These low deposit loans, with no lenders mortgage insurance, and are designed to get you into your home sooner. Another benefit of using Keystart is your loan repayment consists of 3 simplified payments, directly to your builder. In contrast, if you receive a loan from the bank, it will require 5 – 6 progress payments throughout the process which may become held up at any stage, extending the building time.
A Word of advice…
When planning your build, you will almost always come face to face with some unexpected costs, so having a little bit of a contingency fund will help you be prepared for the unforeseen. Also, continue to inspect your home throughout the building process to pick up on anything that may be an issue, and always on the completion of the build. It is essential to research and inquire with different lenders on which loan for your house and land package will best suit you. Get in contact with us, and we can chat property buying tips and advice, and provide you with everything we know about Keystart loans.
Give us a call today (08) 9202 9292 and let us help you get into your dream home sooner.