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Construction loans are very different to a normal purchase of an established home.
There are many different types of construction loans, or terms.
Is buying a house and land package any different from buying a regular home? In many ways, yes.
Most house and land packages are promoted by developers who purchase the land and build the infrastructure—such as roads and lot sizes. Some developers even offer a limited range of house designs to choose from.
However, you’re not locked in. There’s no obligation to build with the developer or use their recommended services. You’re free to choose any builder you like to bring your new home to life.
Financing a house and land package usually happens in two stages:
While loans can be arranged separately, they’re often bundled into one—hence the term “house and land package”—and this is usually coordinated by your broker.
You manage one loan instead of two when your house and land package is bundled together.
If you're borrowing over 80% of the total value, Lenders Mortgage Insurance (LMI) may apply
LMI protects the lender and is explained further in a video on our blog
The construction loan is different in that not all of the money is released to the builder upfront. It is paid out at each stage of the construction process, typically across five stages:
When the foundation or slab is laid
When the frame of the house is put up
When the walls are built up to the top of the doors and windows
When the house is enclosed with external doors and windows
When all construction work is finished
The loan is drawn down (paid to the builder) for the work completed at each stage.
If, for any reason, the builder goes out of business at, say, the second stage (plate high), the remaining money would be more than enough to complete the construction of your house. Additionally, builders are required to have insurance to protect you in this situation. Banks also ensure you are fully protected so you’ll get your home as promised.
The term “house and land package” comes from the fact that you can buy the land from one party (like Mr Joe Bloggs) and have the construction done by another (like Miss Fancypants). The package comes together when your broker combines both into one finance application.
You can also check out our trusted industry partners here, and contact them directly.
What you need to know when buying and financing your home. Download our ebook for home buyer essentials!
Everything you need to know about your home loan journey. Download our ebook for home loan essentials!
