House & Land Packages

Understanding House and Land Packages: A Guide to Finance

At My Mortgage Concierge, we know that purchasing a house and land package can be an exciting opportunity for homebuyers. It offers the chance to design your dream home from the ground up, often at a more affordable price than buying an established property. However, when it comes to finance, house and land packages come with unique considerations that buyers need to be aware of. Here's a breakdown of how financing works and the key things to consider.

What is a House and Land Package?

A house and land package is essentially a bundle deal where you purchase a block of land and have a home built on it by a developer or builder. This allows for flexibility in home design, and it’s often more cost-effective than buying an existing home. But unlike a typical home purchase, it involves two contracts:

1. Land purchase: You buy the land from a developer.

2. Construction contract: You engage a builder to construct your home.

   
   

Financing a House and Land Package: The Process

Securing finance for a house and land package can seem complex, but it typically happens in two stages:

1. Land Loan:The first step is securing a loan to purchase the land. The land loan operates similarly to a traditional mortgage, where you pay a deposit and then take out a loan for the remainder. The lender will value the land, and then approve the loan based on this value, along with your deposit and financial situation.

2. Construction Loan:After securing the land, you’ll need a construction loan to finance the building of your home. Construction loans are structured differently from traditional home loans. They are usually released in stages, called "progress payments," which coincide with various phases of construction. These stages typically include:

   • Slab/Foundations: The base of your home is laid.

   • Frame: The frame or skeleton of the house is built.

   • Lockup: The exterior walls and roof are completed.

   • Fit-out: The internal fixtures like plumbing, electrical, and carpentry are installed.

   • Completion: The finishing touches are added, and your home is ready to live in.

Things to Keep in Mind

1. Deposits

For a house and land package, you will typically need two deposits: one for the land and another for the construction. The size of the deposit will depend on the lender and your financial situation. In some cases, first-home buyers may be eligible for grants or concessions, which can help with these upfront costs.

2. Progress Payments & Interest

With a construction loan, you only pay interest on the amount that has been drawn down at each stage, rather than the full loan amount. This can make your repayments smaller during the construction period. Once the home is complete, the construction loan converts into a standard mortgage.

3. Valuation

Before granting a loan, your lender will require a valuation of both the land and the completed home. It’s crucial that the total value of the property (land and construction) aligns with what you are borrowing. If the valuation comes in lower than expected, you may need to adjust your loan or provide additional funds.

4. Construction Timeframes

It's important to be aware of how long the construction process will take, as you may need to continue renting or paying for alternative accommodation during this time. In most cases, a construction loan has a set term by which construction must be completed.

5. Fixed Price vs. Cost Plus Contracts

When negotiating with your builder, you’ll likely encounter two types of contracts:

• Fixed Price: This provides a set price for construction, protecting you from cost blowouts.

• Cost Plus: This allows for flexibility if costs increase, but it can be riskier and may lead to unexpected expenses.

Benefits of a House and Land Package

• Customization: You can tailor your home to suit your exact needs.

• Affordability: It can be more cost-effective than buying an established home, especially if you're eligible for government grants or incentives.

• Potential for Growth: Buying in a developing area could lead to property value appreciation over time.

Speak to Us for Expert Advice

Financing a house and land package involves more than just securing a standard mortgage. At My Mortgage Concierge, we specialize in helping you navigate these complexities, ensuring you get the right loan structure to suit your unique needs. Whether you’re a first-home buyer or looking to upgrade, we’re here to guide you through every step of the process.

Get in touch with us today to explore your options and start your journey toward building your dream home!