House and land packages are a very tempting means to purchase a brand-new, quality home in an up-and-coming location – they basically have everything you could want and need, all put together in a tidy package. As part of a house land package, you purchase a pre-determined house design as well as the block of land on which it sits.
But while they can be wonderfully affordable, there are some extra steps you’ll need to consider when taking out a loan for a house and land package, since the process can be a little different than a traditional home loan.
Understand The Difference In Loans
If you intend to take out a loan for a house and land package, you will be taking out a different sort of loan than if you were borrowing money to purchase an established home. Most lenders will require you to take out what is known as a construction home loan, which has a higher interest rate than a regular home loan but is only in place for the duration of your build.
A construction home loan also differs in that it is not paid to you in a large lump sum that reflects the estimated value of your completed home. Instead, your lender will grant your loan in portions as construction progresses, in what is known as drawdowns or progress payments, essentially paying your builder on your behalf as work progresses.
No matter what loan you seek, you should always work towards pre-approval, so you know exactly what you can spend on your new house and land package.
If you decide to go forward with a construction home loan, you will need to budget approximately 5% of the total building cost. In addition to the usual documents you need for a loan, you’ll also need to have:
- The building contract (outlining construction stages and payment schedules)
- Building plan (the floorplan or blueprint of your home)
- Quotations (for additions that can boost the value of the home, such as solar panels).
The Stages Of House And Land Package Loan Payments
Once you have been approved for your loan, as a part of your house and land package, your lender will pay your loan to your builder periodically throughout the build. Your builder will be required to present invoices for their work before progress payments are made, usually at the following stages.
Stage 1: Slab Down
This is where the foundations of your home are laid. At this stage, your lender will also be paying for the levelling of the land, plumbing installation and waterproofing of the foundation.
Stage 2: Frame
At this point, your lender will pay for the framework of your house to be constructed. This includes the construction of trusses and the roofing of your home, as well as any required brickwork.
Stage 3: Lock-up
This is when the largest lump (approximately 35%) from your lender is paid. The lock-up process includes all insulation, external walls and doors of your home.
Stage 4: Fit-out
As your home is coming together, your lender will be paying your builder for kitchen and bathroom cabinets, shelving, tiles, external cladding, and finalising plumbing and electrical works.
Stage 5: Completion
This is where all the finishing touches are added to your home. Painting it completed, fences are constructed, floors are polished, and your home is made move-in ready.
Once this stage is completed, you’ll be required to have your new home inspected, to make sure it has been built to standard.
What repayments do I make on house and land packages?
Unlike a regular home loan, the interest repayments on a construction loan – like those undertaken for home and land packages – are not calculated from your final lump sum. Instead, you pay interest on each instalment (that is, the stages listed above).
This means, for instance, if you receive approval on a $400,000 construction loan but only spend $200,000, interest will only be charged on that $200,000 figure. Throughout construction of your home, you only pay interest, and can continue to do so once the home is completed. You can, however, choose to convert your construction home loan to a regular home loan at this point.
House And Land Package Pros And Cons
House and land packages streamline the purchasing of land and construction of a new home at a very affordable price. But like any grand financial decision, it’s worth looking at all angles.
- Simplifies both buying land and choosing a design that best suits the block.
- An easy process. Most people who choose a home will have two contracts – one for the land developer, and one for the builder – but as your package is coming from the same vendor, your contracts will be easier to navigate.
- You can take advantage of the first home buyer’s grant, saving you $10,000 or more!
- Far more affordable than building or buying an established home in pricey areas of your city.
- Lot sizes of home land packages tend to me on the smaller side.
- You may be unable to purchase a package in the exact neighbourhood you desire.
- You may be unable to build a specific house design, as the lot size and orientation can affect this. You will likely have to choose from house designs that have been pre-approved for the lot.
- Lower yield. If you are wanting to make money quickly by building and selling a new home, the areas in which house and land packages are available tend to experience a slightly slower growth than in other parts of the city.