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The Ultimate Guide to Building a New Home

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Building a home is a bit more complicated than buying an established one. But the main draw of building your own home is the level of customisation you won’t find with buying an already-built property. 

If you’re interested in constructing your own home, check out this quick guide. 

An overview of the home building process 

The home building process can be broken down into a few steps. For a more detailed guide, check out the steps to building your first home. Below is a quick summary of the whole home building process: 

  • Decide on the location and builder. This involves finalising the purchase on vacant land and approving the builder’s plans.  
  • Get a construction loan. Submit your application to the lender and wait for approval. 
  • Start construction on your new home. This is when the building begins. This phase encompasses almost everything, from slab down to practical completion. 
  • Final walkthrough and fixes. You’ll need to get a copy of your Occupancy Certificate, home building insurance, and signed authorisation so the builder can fix anything that isn't up to scratch before the final payment is made. 
  • Final payment. The last payment will be provided to the builder upon completing the home construction. Your construction loan will be converted to a standard home loan. 

Determine your budget 

You need to know how much you can afford. Review your finances carefully and see how much you can comfortably spend on your home construction. For a quick estimate, use an online borrowing power calculator. Simply input the needed information and you’ll have an idea of how much you could borrow.  

These online calculators only base their computation on the information you put in. If you want a real estimate of your potential loan, apply for loan pre-qualification

Pre-qualify for a construction loan 

If you’re having trouble coming up with a budget, apply for a pre-qualified construction loan. A loan pre-qualification gives you an estimate of how much you could borrow from a lender. This can help you set a realistic budget when planning your home construction.  

Once you are pre-qualified, you’ll know how much you can spend on your build so you can plan with confidence. Apply online or talk to our friendly lending specialists for more information. 

Additional costs to building a home 

Building isn’t just about paying the price for the land and construction. There are some extra costs buyers need to be aware of which are: 

  • Stamp duty – This is a state tax that must be paid within 30 days of the property settlement. Stamp duty rates vary depending on the state or territory governments. Some states give special discounts for First Homeowners who meet certain criteria. 
  • Lenders Mortgage Insurance – This only applies to borrowers who did not provide at least 20% deposit. This insurance policy protects the lender from financial loss if the borrower can’t keep up loan repayments.  
  • Construction assessment progress fee – This one-off fee covers the security assessments required for each construction stage of the property you are building. At loans.com.au, we assume a 6-stage construction. If you have agreed to add extra stages with the builder, you may end up paying a higher fee. 
  • Conveyancing – This is the process of transferring ownership of a legal title of land (property) from one person or entity to another. When you buy a property, you should appoint a conveyancer or solicitor to handle the conveyancing for you. 

Take these additional costs into consideration when reviewing your budget. When building a home, construction tends to go over budget so considering extra fees and expenses can help you prepare properly. 

Financing your first home build 

When it comes to funding a first-home build, most homeowners choose a construction loan. If you want to build the home of your dreams but don’t have enough funds or want to avoid dipping too much into your savings, this is a great solution. 

With a construction loan, you’re provided with the funds as the construction of your home progresses. After each stage of the build or renovation, we arrange an inspection and then pay the builder for that work. You’ll pay the builder as the home construction goes on until your home is fully built.  

Upon building completion, your construction loan will work like a standard home loan. You’ll pay off the loan through regular monthly, fortnightly, or weekly repayments until your loan term is over. 

What affects your construction loan? 

Your construction loan depends on several factors such as your credit score, credit history, financial situation, and the like. Here are some factors that could affect how much you can borrow and the construction loan interest rate: 

  • Number of borrowers 

If you’re building the home on your own, the amount you can borrow will be determined by your finances alone. For those who are building a home with a partner, spouse, or family member, the amount you’ll be allowed to borrow will be determined by your combined finances. 

  • Deposit 

A larger deposit may mean a lower interest rate. The larger the deposit the lower the risk to lenders so they may charge you less. Most lenders will want you to put down at least 10% of the purchase price of the property. This means the rest – 90% of the purchase price of the property – can be financed using a home loan. 

A deposit of 20% or more lets you avoid paying for Lenders Mortgage Insurance (LMI). Paying more upfront could lead to more savings in the long run. 

  • Income and expenses 

The size of your income has a big influence on how much you can borrow because the more you earn the more you can afford to repay. Make sure you include and document all your sources of income when you apply for a loan including salary, rent, interest, and business income. 

Your lender will also want to know your expenses because it helps them assess how much you have left over to make loan repayments. 

Apply for a construction loan with loans.com.au 

If you’re ready to build your own home, apply for a construction loan today! At loans.com.au, we offer a range of construction loans with competitive rates and incredible features.

About the article

As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.

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