Welcome to the Perth Mortgage Broker Group Website.
Construction home loans are offered by most banks and lenders. The two most popular ways to build a house in Western Australia, is to buy the land first, then build on it, or to purchase a house and land package. Lets look at what the difference is, and how a mortgage works, when building a home.
Generally speaking, when you buy your block of land first, you would take a home loan to purchase it. Most banks and lenders will lend up to 90% to 95% of the land purchase price. You would have a land loan at this stage, making repayments on the land loan itself. You can request interest only repayments, as you may be paying rent or boarding somewhere, to help reduce your monthly costs.
Once you have found the builder and a design of a home you like, your builder will provide you with a fixed priced building contract. This fixed priced building contract has the plans, specifications, guidelines and price of the home that you are going to build.
The price of your home will be broken down into various stages, these are called progress payments. For example, let’s say the home costs $150,000 and you have 3 progress payments of $50,000 each. These progress payments will draw down as the home gets built. Progress payment 1 may be $50,000 to lay the concrete slab down, progress payment 2, to build the walls and roof then the final progress payment 3, to finish the home. By this stage you should be nearly ready to do your final inspection, and make sure everything is working to your satisfaction before moving into your new home. Most fixed priced building contracts have between 3 to 6 progress payments.
The home loan would at the start, be just for the land only, and then as per the example above, increase by $50,000 as each progress payment is made to the builder. Repayments with most banks are only interest only during construction, but you can pay extra on to your home loan if you choose.
It is highly advisable to speak to a mortgage broker, to learn the pro’s and con’s of a construction home loan. It would be recommended also, to obtain pre approved mortgage finance, to help learn what you can borrow, and what may be the most suitable home loan for your personal situation.
A house and land package is essentially a construction loan, but the land and the home are purchased together. This way you know what the land costs, know what type of home can be built on the land, and know the full price of the house and land would be.
The mortgage finance works the same way as buying the land, then finding a home to build, as at the start your loan would be paying the land component of the house and land package. As the home is built, you would be in the progress payment stage of your building contract, so the loan would be increasing as the progress payments are made, till you have made your final progress payment, and nearly ready to move into your brand new home.
If you would like some more information on construction, contact Perth Mortgage Broker Group , or call Troy on 0411 229 602, 7 days a week.