Buying old vs building new: Which do you choose?

Buying old vs building new: Which do you choose?

The world of real estate is defined by many ‘either-or’ questions: Should I fix my home loan rate or leave it floating? Should I buy an apartment or a detached house? Is it better to invest first or become an owner occupier?

Among these questions is the all-important ‘buying old vs building new’ debate. While your ultimate decision is going to depend on your particular needs, wants and circumstances, each option has pros and cons that may help tilt your decision one way or another. Let’s have a look at how they match up. 

Government support — Advantage: Building a house

All of the state governments provide various types of support for first home buyers. These are all directed at either brand new homes, properties to be constructed or vacant land however. For instance, the New South Wales First Home-New Home scheme offers stamp duty exemptions on new homes that are worth up to $550,000, and concessions for those valued between that and $650,000. They also have a full exemption on vacant land worth up to $350,000. 

Meanwhile, all of the states provide grants generally ranging from $10,000-$15,000 for first home buyers buying a new home. For those looking at the figures on a home loan calculator with trepidation, this can be a useful financial boost. In this area, buying a new home wins out. 

Speed — Advantage: Buying old

If you’re an owner-occupier, when you purchase a new home, you want to move in as quickly as possible. While you might be able to get some useful discounts on the price of a new home, you’ll have to wait for a significant amount of time before you can live in it. According to the Australian Housing and Urban Research Institute, in 2010 , new homes were taking an average of 7.5 months to build. 

By contrast, after settlement — and once the cooling-off period has been observed — you can feel free to move into an established home straight away. 

Customisation — Advantage: Building a house

With a pre-occupied home, short of an astronomically expensive renovation that will push your savings account to the limit, it’s not going to change. It may have been designed for different owners — and for a different time — but you won’t be able to do a whole lot to make it fit your needs. 

A house and land package, however, affords you the opportunity to design a home perfectly suited to who you are. This is a practical matter, too. As Madeline McErlain, marketing manager of 4Land Property Group points out, up-to-date technology like energy efficient appliances and modern cabling can be costly and difficult to install in old houses. It will also save you money down the line. 

Extraneous costs — Advantage: Building a house

Both types of purchases have added costs on top of the property itself. If you buy pre-occupied, you’ll have to carry out a building and pest inspection to make sure the home is of a good quality. According to the Queensland government, this will cost you $400-600 for a standard three-bedroom house. On top of this, the house will have suffered wear and tear, and will likely require maintenance somewhere down the line. 

Buying a new home also comes with potential costs. Building could be delayed by weather, and if you hire an unreliable builder, the process could both be slower and more expensive than you wished. You’ll also have to pay for an inspection of the property at each building stage. However, these are mostly risks that may not necessarily come to fruition, and new homes can save you money in the long run — you won’t need to pay as much for repairs or maintenance.

Choice of location — Draw

With the scarcity of land in Australia’s capitals, if you want to build new you’re generally going to be looking in more outer areas. For instance, in Sydney, much of the new home building activity has taken place in the city’s western regions — 100,000 new homes between 2011 and 2014, according to the NSW government. This is because available land in areas closer to the centre of the city has largely depleted across the capitals.

While in theory that means you’ll have a larger amount of choice with an established home, this may not necessarily be the case. The other reason buyers look to outer areas is because of their lower price entry point. Buyers may find that established homes in more convenient areas are out of their price range, narrowing their options anyway. This may not be the case across the board though — more affordable cities like Brisbane and Adelaide might buck this trend.

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Learn more about home loans

How can I get ANZ home loan pre-approval?

Shopping for a new home is an exciting experience and getting a pre-approval on the loan may give you the peace of mind that you are looking at properties within your budget. 

At the time of applying for the ANZ Bank home loan pre-approval, you will be required to provide proof of employment and income, along with records of your savings and debts.

An ANZ home loan pre-approval time frame is usually up to three months. However, being pre-approved doesn’t necessarily mean you will get your home loan. Other factors could lead to your home loan application being rejected, even with a prior pre-approval. Some factors include the property evaluation not meeting the bank’s criteria or a change in your financial circumstances.

You can make an application for ANZ home loan pre-approval online or call on 1800100641 Mon-Fri 8.00 am to 8.00 pm (AEST).

How long does Bankwest take to approve home loans?

Full approval for a home loan usually involves a property valuation, which, Bankwest suggests, can take “a week or two”. As a result, getting your home loan approved may take longer. However, you may get full approval within this time if you applied for and received conditional approval, sometimes called a pre-approval, from Bankwest before finalising the home you want to buy.  

Another way of speeding up approvals can be by completing, signing, and submitting your home loan application digitally. Essentially, you give the bank or your mortgage broker a copy of your home’s sale contract and then complete the rest of the steps online. Bankwest has claimed this cuts the approval time to less than four days, although this may only happen if your income and credit history can be verified easily, or if your home’s valuation doesn’t take time.

Remaining loan term

The length of time it will take to pay off your current home loan, based on the currently-entered mortgage balance, monthly repayment and interest rate.

Can I get a NAB home loan on casual employment?

While many lenders consider casual employees as high-risk borrowers because of their fluctuating incomes, there are a few specialist lenders, such as NAB, which may provide home loans to individuals employed on a casual basis. A NAB home loan for casual employment is essentially a low doc home loan specifically designed to help casually employed individuals who may be unable to provide standard financial documents. However, since such loans are deemed high risk compared to regular home loans, you could be charged higher rates and receive lower maximum LVRs (Loan to Value Ratio, which is the loan amount you can borrow against the value of the property).

While applying for a home loan as a casual employee, you will likely be asked to demonstrate that you've been working steadily and might need to provide group certificates for the last two years. It is at the lender’s discretion to pick either of the two group certificates and consider that to be your income. If you’ve not had the same job for several years, providing proof of income could be a bit of a challenge for you. In this scenario, some lenders may rely on your year to date (YTD) income, and instead calculate your yearly income from that.

Can I change jobs while I am applying for a home loan?

Whether you’re a new borrower or you’re refinancing your home loan, many lenders require you to be in a permanent job with the same employer for at least 6 months before applying for a home loan. Different lenders have different requirements. 

If your work situation changes for any reason while you’re applying for a mortgage, this could reduce your chances of successfully completing the process. Contacting the lender as soon as you know your employment situation is changing may allow you to work something out. 

What fees are there when buying a house?

Buying a home comes with ‘hidden fees’ that should be factored in when considering how much the total cost of your new home will be. These can include stamp duty, title registration costs, building inspection fees, loan establishment fee, lenders mortgage insurance (LMI), legal fees and bank valuation costs.

Tip: you can calculate your stamp duty costs as well as LMI in Rate City mortgage repayments calculator

Some of these fees can be taken out of the mix, such as LMI, if you have a big enough deposit or by asking your lender to waive establishment fees for your loan. Even so, fees can run into the thousands of dollars on top of the purchase price.

Keep this in mind when deciding if you are ready to make the move in to the property market.

What are the pros and cons of no-deposit home loans?

It’s no longer possible to get a no-deposit home loan in Australia. In some circumstances, you might be able to take out a mortgage with a 5 per cent deposit – but before you do so, it’s important to weigh up the pros and cons.

The big advantage of borrowing 95 per cent (also known as a 95 per cent home loan) is that you get to buy your property sooner. That may be particularly important if you plan to purchase in a rising market, where prices are increasing faster than you can accumulate savings.

But 95 per cent home loans also have disadvantages. First, the 95 per cent home loan market is relatively small, so you’ll have fewer options to choose from. Second, you’ll probably have to pay LMI (lender’s mortgage insurance). Third, you’ll probably be charged a higher interest rate. Fourth, the more you borrow, the more you’ll ultimately have to pay in interest. Fifth, if your property declines in value, your mortgage might end up being worth more than your home.

How can I get a home loan with bad credit?

If you want to get a home loan with bad credit, you need to convince a lender that your problems are behind you and that you will, indeed, be able to repay a mortgage.

One step you might want to take is to visit a mortgage broker who specialises in bad credit home loans (also known as ‘non-conforming home loans’ or ‘sub-prime home loans’). An experienced broker will know which lenders to approach, and how to plead your case with each of them.

Two points to bear in mind are:

  • Many home loan lenders don’t provide bad credit mortgages
  • Each lender has its own policies, and therefore favours different things

If you’d prefer to directly approach the lender yourself, you’re more likely to find success with smaller non-bank lenders that specialise in bad credit home loans (as opposed to bigger banks that prefer ‘vanilla’ mortgages). That’s because these smaller lenders are more likely to treat you as a unique individual rather than judge you according to a one-size-fits-all policy.

Lenders try to minimise their risk, so if you want to get a home loan with bad credit, you need to do everything you can to convince lenders that you’re safer than your credit history might suggest. If possible, provide paperwork that shows:

  • You have a secure job
  • You have a steady income
  • You’ve been reducing your debts
  • You’ve been increasing your savings

Why should I get an ING home loan pre-approval?

When you apply for an ING home loan pre-approval, you might be required to provide proof of employment and income, savings, as well as details on any on-going debts. The lender could also make a credit enquiry against your name. If you’re pre-approved, you will know how much money ING is willing to lend you. 

Please note, however, that a pre-approval is nothing more than an idea of your ability to borrow funds and is not the final approval. You should receive the home loan approval  only after finalising the property and submitting a formal loan application to the lender, ING. Additionally, a pre-approval does not stay valid indefinitely, since your financial circumstances and the home loan market could change overnight.

 

 

Can I apply for an ANZ non-resident home loan? 

You may be eligible to apply for an ANZ non-resident home loan only if you meet the following two conditions:

  1. You hold a Temporary Skill Shortage (TSS) visa or its predecessor, the Temporary Skilled Work (subclass 457) visa.
  2. Your job is included in the Australian government’s Medium and Long Term Strategic Skills List. 

However, non-resident home loan applications may need Foreign Investment Review Board (FIRB) approval in addition to meeting ANZ’s Mortgage Credit Requirements. Also, they may not be eligible for loans that require paying for Lender’s Mortgage Insurance (LMI). As a result, you may not be able to borrow more than 80 per cent of your home’s value. However, you can apply as a co-borrower with your spouse if they are a citizen of either Australia or New Zealand, or are a permanent resident.

Does Australia have no cost refinancing?

No Cost Refinancing is an option available in the US where the lender or broker covers your switching costs, such as appraisal fees and settlement costs. Unfortunately, no cost refinancing isn’t available in Australia.

If I don't like my new lender after I refinance, can I go back to my previous lender?

If you wish to return to your previous lender after refinancing, you will have to go through the refinancing process again and pay a second set of discharge and upfront fees. 

Therefore, before you refinance, it’s important to weigh up the new prospective lender against your current lender in a number of areas, including fees, flexibility, customer service and interest rate.

Can I refinance if I have other products bundled with my home loan?

If your home loan was part of a package deal that included access to credit cards, transaction accounts or term deposits from the same lender, switching all of these over to a new lender can seem daunting. However, some lenders offer to manage part of this process for you as an incentive to refinance with them – contact your lender to learn more about what they offer.

What is an ombudsman?

An complaints officer – previously referred to as an ombudsman -looks at formal complaints from customers about their credit providers, and helps to find a fair and independent solution to these problems.

These services are handled by the Australian Financial Complaints Authority, a non-profit government organisation that addresses and resolves financial disputes between customers and financial service providers.