Building a new home is an exciting project, but it can also be very stressful if you don’t have the appropriate financial structure in place.
When building a new home, there are two main payment structures available to you, both of which come with pros and cons:
You pay a deposit to the builder, usually 10 per cent, and the balance when you take possession on your new home.
The main advantage is that you don’t have to pay rent and a construction loan at the same time. Turn-key loans are favoured by banks so they can also be easier to secure.
However, in most cases you will end up paying a little bit more with a turn-key loan, as hidden finance costs will be built into the loan.
Also, if the builder or land developer goes under, you have no rights to your home and could lose your deposit.
This risk can be mitigated by ensuring the deposit is held in the builder’s solicitor’s trust account until settlement.
Progress payments loan
You purchase the land and then start making ‘progress’ payments as soon as building begins.
There are no hidden funding costs and often less risk because you own the land at the outset and only pay for each stage of the build upon completion.
However, interest payments are required throughout the build, and the assessment process for progress payments loans can be more arduous.
Seeking sound legal advice when buying a new home can help you determine the best financial structure to suit your circumstances.