Tips for building a new home

Tips for building a new home

Although owning a home of your own is a great feeling, there’s something to be said about having a property built from the ground up that’s yours and only yours. 

In fact, if you’re a New South Wales resident, you just got an extra incentive to look at home loans for a newly-built home, thanks to the changes to the First Home Owners Grant (FHOG) in the state budget. 

“The increase in the threshold of the $15,000 First Home Owners Grant on new properties to $750,000 from $650,000 in [the recent state] budget is welcomed,” Malcolm Gunning, president of the Real Estate Institute of New South Wales, said in a statement. 

Whether you live in NSW and want to take advantage of the FHOG extension, or if you’re simply wanting to build a new home from scratch, consider these tips before you go hunting for a mortgage. 

Pick the right plot of land 

There are a number of factors to consider when choosing the block you want to build on. What’s the neighbourhood like? Does it satisfy your needs? For example, if you’re a parent, you’ll want amenities like schools and parks nearby, or if you want an affordable, swift commute, you might look at public transportation nearby.

Also think about whether the land you’ve chosen is conducive to the type of house design you’re after – not every block can accommodate a swimming pool.

Figure out the costs involved 

Budget – it’s the magic word when it comes to any financial decision, and this is no different when building a new home. Use a home loan calculator or speak with a bank to work out what you can borrow before you commit to a building project. At the same time, don’t forget to let those additional, unpredictable costs measure into your budgeting. Building a house doesn’t happen overnight, and both paperwork and the elements can put construction off schedule during this time. 

You’ll also want to factor in the administrative costs – you’ll likely need to purchase construction insurance at some point, there may be initial site preparation costs to take care of and you may even pay for a site inspection before you buy. 

Always be vigilant

It’s liberating to have a brand new dwelling that no one else has set foot in, but one of the disadvantages is that you don’t know what exactly the finished product will be like until completion. To make sure your new dream home turns out how it’s supposed to, you’ll want to check in on the building site regularly. Don’t be afraid to have your own inspection of the site – if it’s dirty, messy or there’s even damage, these could be warning signs about the final product. 

Choose the right builder

It’s vital that you pick the right person to build your home. Take the time to investigate the different candidates and look into their building history. Looking on the internet and speaking to previous clients can give you a good idea of their level of quality.

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What is a redraw fee?

Redraw fees are charged by your lender when you want to take money you have already paid into your mortgage back out. Typically, banks will only allow you to take money out of your loan if you have a redraw facility attached to your loan, and the money you are taking out is part of any additional repayments you’ve made. The average redraw fee is around $19 however there are plenty of lenders who include a number of fee-free redraws a year. Tip: Negative-gearers beware – any money redrawn is often treated as new borrowing for tax purposes, so there may be limits on how you can use it if you want to maximise your tax deduction.

What is a fixed home loan?

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

Mortgage Calculator, Loan Amount

How much you intend to borrow. 

What is a building in course of erection loan?

Also known as a construction home loan, a building in course of erection (BICOE) loan loan allows you to draw down funds as a building project advances in order to pay the builders. This option is available on selected variable rate loans.

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We work closely with lenders to get updates as quick as possible, with updates made the same day wherever possible.

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This is what you will use the loan for – i.e. investment. 

Why is it important to get the most up-to-date information?

The mortgage market changes constantly. Every week, new products get launched and existing products get tweaked. Yet many ratings and awards systems rank products annually or biannually.

We update our product data as soon as possible when lenders make changes, so if a bank hikes its interest rates or changes its product, the system will quickly re-evaluate it.

Nobody wants to read a weather forecast that is six months old, and the same is true for home loan comparisons.

What is bridging finance?

A loan of shorter duration taken to buy a new property before a borrower sells an existing property, usually taken to cover the financial gap that occurs while buying a new property without first selling an older one.

Usually, these loans have higher interest rates and a shorter repayment duration.

What is the flexibility score?

Today’s home loans often try to lure borrowers with a range of flexible features, including offset accounts, redraw facilities, repayment frequency options, repayment holidays, split loan options and portability. Real Time Ratings™ weights each of these features based on popularity and gives loans a ‘flexibility score’ based on how much they cater to borrowers’ needs over time. The aim is to give a higher score to loans which give borrowers more features and options.

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The amount you currently owe your mortgage lender. If you are not sure, enter your best estimate.

What is the average annual percentage rate?

Also known as the comparison rate, or sometimes the ‘true rate’ of a loan, the average annual percentage rate (AAPR) is used to indicate the overall cost of a loan after considering all the fees, charges and other factors, such as introductory offers and honeymoon rates.

The AAPR is calculated based on a standardised loan amount and loan term, and doesn’t include any extra non-standard charges.

What is the ratings scale?

The ratings are between 0 and 5, shown to one decimal point, with 5.0 as the best. The ratings should be used as an easy guide rather than the only thing you consider. For example, a product with a rating of 4.7 may or may not be better suited to your needs than one with a rating of 4.5, but both are probably much better than one with a rating of 1.2.

Does each product always have the same rating?

No, the rating you see depends on a number of factors and can change as you tell us more about your loan profile and preferences. The reasons you may see a different rating:

  • Lenders have made changes. Our ratings show the relative competitiveness of all the products listed at a given time. As the listing change, so do the ratings.
  • You have updated you profile. If you increase your loan amount, the impact of different rates and fees will change which loans are the lowest cost for you.
  • You adjust your preferences. The more you search for flexible loan features, the more importance we assign to the Flexibility Score. You can also adjust your Flexibility Weighting yourself, which will recalculate the ratings with preference given to more flexible loans.

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How often you wish to pay back your lender.