Anyone looking for a new home will soon come across advertisements for house and land packages. These deals are becoming increasingly popular in an ever-competitive property market, and many Australians are finding this to be a great way to get their foot in the door. However, the question is, how do you get a loan for a house and land package? Today, we’re looking at house and land loan package options.
What is a house and land package?
A house and land package is a deal where you purchase a block of land and build a home as a single process. These packages are found in a variety of situations but are especially popular on master-development projects or estates. This is because property developers will buy land when it is released by the government and make deals with builders.
How do house and land packages work?
Usually, financing a new home requires two key steps. First, you need to purchase the block of land and then you need to find a builder to build your home. A house and land package turns this into a single process with two contracts.
The good news is you’ll only have to pay stamp duty on the land proportion of your deal. This differs from buying a pre-existing property and house, where you would have to pay stamp duty on everything.
What loan options are there for house and land packages?
Step 1: Buying the land
The first step is to get a loan to cover the purchase of the land. A land package loan resembles a standard home loan, where you’ll need to put down a deposit of about 10%. If you buy a block of land with a house already built on it, you may only have to pay a 5% deposit, however, depending on the deal, you may have to pay stamp duty on both the land and house.
Both types of loans will have a monthly payment schedule you’ll need to meet.
Step 2: Building the home
The second component is to receive a construction loan to build your house. Construction loans differ from standard house loans as payments will be made by your financial institution in instalments throughout the construction process.
What’s the difference between a house and land loan and a construction loan?
Construction loans are specifically designed to help finance the building process of a house or renovation, whereas a traditional home loan is used to purchase a pre-existing home. Construction loans are paid out in stages throughout the build, for example, one payment will be made during the slab stage, and another during the frame stage.
Can you get a grant for a house and land package?
In Queensland, you can apply for a First Owners Grant to buy a turnkey package. This will add up to about $15,000, however, this can not be put towards the land proportion of the deal.
How much can you borrow for a house and land package?
the amount you can borrow will depend on your current borrowing power, financial situation, the equity you can offer, your financial history, the institution you’re borrowing from and the type of house and land package you’re borrowing for.
- Up to 90%-95% of the completed total value of the property if purchasing a turnkey property
- Up to 95% of the value of the block of the land if you’re purchasing the land first and then planning to build later
- 100% if you’re buying with a guarantor. This is an individual (often a parent) who legally agrees to cover the debt should you fail to.
How much of a deposit do you need for a house and land loan?
It can vary depending on who you borrow from, however, usually, you’ll need to pay somewhere between 5-10% of the total amount. If you’re borrowing over 80% of the property value, you’ll need to purchase Lenders Mortgage Insurance (LMI), which can be pricey and sometimes added to your loan.
What documents do you need to apply for a house and land loan?
Your lender will specify which documentation they will need to proceed with the loan, however, the following are the most common documents required:
- Identification: This needs to be something official that validates your identity, like a driver’s license
- Proof of Income: Documents that show your income like the previous few payslips, so the lender can check you’re able to pay back the loan
- Information regarding your assets and liabilities: This includes records of your savings, information regarding debts,
- Property details: Anything to do with the property including contract, bill of sale and address.
- Supporting documentation: For first home buyers, financiers and investors.
Does buildi have a list of recommended builders to work with?
Yes, we certainly do. Buildi has written many Builder Reviews about some of the biggest names in the construction industry. Click on your relevant region to find a list of builders we’ve reviewed.
Tips for choosing a new home builder
- Research any builder you’re considering carefully
- Talk to at least three builders and get quotes from each. This allows you to get a sense of what is available and find the best option for you.
- When comparing quotes, don’t just look at price. Check the inclusions and precisely what the number they’ve quoted will cover.
- Read your contract carefully and be sure you understand it. There’s no shame in asking a builder to clarify anything. Remember you’re potentially going to pay them hundreds of thousands of dollars. You have the right to know exactly what you’re signing up for.
- Keep in mind the old saying that if it seems too good to be true, it is. Builders offering ridiculous prices are either cutting corners or are struggling to keep afloat and desperate for business. Neither is good news for you. We all love a bargain, but not if it costs us more in the long run.
- Sort out your financial situation first. Talking money isn’t the most fun thing for most people, but it’s vital you have a budget and a realistic, honest knowledge of what you can afford. Money problems are one of the most common issues that bring construction projects to a halt. Knowing your finances and having a budget will help with planning.
- Talk to a building broker about your new home. Most people only build one or two houses in their entire lives, whereas at Buildi, we’ve helped hundreds of clients throughout their building journey. We know everything you need to do, the pitfalls to avoid, and the right people to get in touch with. Give us a call today to find out how we can help you.