Purchasing land and building your own home is the quintessential Australian Dream. You get the freedom to design a home that suits the needs of you and your family, and flexibility in choosing your location.
However, with the multiple factors of land purchase, building costs and construction time, your mortgage works differently from a standard home loan.
How construction loans work
If you are building, you will have a construction loan during the property purchase and build phase of your home, and this will revert to a standard loan once the construction is complete.
The construction loan is usually a short-term variable rate loan, with interest-only repayments made on the outstanding balance during the construction period. As the builder completes the work, they will usually be paid in six different increments, and so your interest will increase for each of these during this time.
When construction is complete and the loan reverts to a regular loan, you won’t have to pay extra for the transfer to the new loan. That’s why it’s essential to make sure you get a good rollover rate from the beginning.
But first, get your loan pre-approved
Building a new home involves much more planning than buying an established property. From choosing the number of bedrooms, to the small details like installing double-glazed windows, you will have a lot to think about.
By getting your loan pre-approved, you will be clear on your budget and able to make much more informed decisions in your house and land shopping.
Get it right from the start
Building your new home may take 6 to 12 months, but your mortgage will likely be with you for 20 to 30 years. That’s why it’s important to make getting the right loan one of your biggest priorities.
With so many options and factors involved, it’s best to speak to a professional with the right experience and access to the right loan packages.
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