Whether it’s an apartment, townhouse or house and land package, financing a new build comes with its own set of quirks that differ from buying an established property.
It’s crucial to understand these from the onset - that way; you’ll be ready to jump on that opportunity as soon as it becomes available. Here’s what you need to know.
Reign in those dreams and get realistic by understanding exactly how much you can borrow for your new home. It’s important to set a budget for monthly mortgage repayments that allows you to still live the lifestyle you want; however, you may need to make some sacrifices too.
Most financial institutions will have a simple mortgage calculator online to assist you with this and help stay on track with your savings.
To secure a bank loan, most lenders require home buyers to have a minimum 20% deposit. So, if you are buying a home for $480,000, lenders expect you to have $96,000 to put towards the cost of the property. The good news is that this can be less for first home buyers this information guide helps to explain how.
It should be noted that property developers require a deposit of 10% or less to secure the property that you’re purchasing.
A lender or mortgage broker will step you through the entire process and ultimately provide you with pre-approved finances once you’ve got all the boxes ticked.
If you’re buying off the plan, with certain property types such as apartments and some townhouses, you’ll typically only settle on the property once it’s move-in ready. This means, that aside from the deposit paid to the developer, you can keep saving while the build is underway. House and land packages and some townhouse purchases such as the Addison Walk townhouses in Williams Landing are a little different, as you will need to settle on the land before building starts. Your loan repayments on the land will kick in straight after the land settlement, and you will be required to make progress payments throughout the build until it’s completed. Make sure you clarify your individual loan commitments with your lender or broker to ensure there’s no confusion.
The three most common loan structures are variable rate, fixed-rate, and variable loans. Each has its benefits and risks, and your lender or broker can help guide you through what is best for you. Read more on the 3 most common loan structures in How to prepare your finances for purchasing a new build home.
If you already own a property, you may be able to use the value held in this as a deposit towards purchasing a new build. Equity is worked out by looking at the current value of the currently owned property, minus the amount owed on it. It’s an equation that can get increasingly complex for investors, so it’s best to speak to your lender about accessing equity.
While these vary by state, there are a number of grants, schemes and benefits available to help first home buyers get on the property ladder - many of which apply exclusively to new homes. In Victoria, the First Home Owner Grant (FHOG) is available for eligible first home buyers that are buying or building a new home valued up to $750,000. Visit the State Revenue Office Victoria’s website to learn more.
Stamp duty is an unavoidable tax on all property purchases and one that you don’t want to come as an unexpected surprise. Also known as transfer duty, stamp duty is a government tax that ranges between 3-6% of the property’s value. With new builds this can vary - for example, if you’re buying a house and land package, you’ll only pay stamp duty on the land - a huge saving! In Victoria, as a first home buyer you may be eligible for and receive an exemption, concession or reduction from stamp duty for your property. Select Addison Walk properties may be eligible for stamp duty savings, speak to our Sales team or visit the State Revenue Office Victoria’s website to learn more.
Ready for the next step?
While getting across your finances is the first step in any property purchase, it’s essential to understand the unique factors of financing a new build as you head on the journey towards your brand-new home. Now that you’ve covered the basics, are you ready to take the next step?
*Disclaimer: The information used in this document is indicative only and may not represent the final detail or accurately represent personal circumstances of each person. Cedar Woods gives no warranty concerning the accuracy of the material or information displayed in this blog. Prospective buyers should make their own enquiries and rely on their own investigations and independent advice. All information in this blog is subject to Terms of Use accessible at www.cedarwoods.com.au/Terms-of-Use.