Construction, Land & House Builds / Packages
Construction loans are very different to a normal purchase of an established home.
There are many different types of construction loans, or terms
- Next storey additions
- Knock down and re-build
- Extensions, maybe a new kitchen and pool, and the more widely known,
- House and land construction. Where you buy a block of land and build a house on it.
Is buying a house and land package purchase any different to buying a house?
Today most home and land packages are advertised through developers who purchase the land and then lay down the infrastructure, as in the roads and the size of each lot. Some even offer designs for you to choose from to build, but a limited selection.
There is no requirement for you to build with the land purchaser or to be referred to another department within that company. You can choose any builder you want to build your house.
Financing for a house and land package usually consists of two stages: buying the land then building the house. The loans can be arranged separately but are usually bundled together when the loan is applied for, hence the term house and land package. This is done by your broker.
We do this for a few reasons, mainly that you have one loan and not two loans if arranged separately. Also if Lenders Mortgage Insurance is required, this kicks in if you are borrowing over 80% value of the land and house combined. Lenders Mortgage Insurance is explained in a video on our blog. It explains how banks treat you if you borrow more than 80% of the value of a property
Buying the land is a standard real estate purchase and treated as a regular mortgage, really no different from buying an established house.
The construction loan is different in that not all of the money is released to the builder up front. It is paid at each stage of the construction (normally five stages). The loan gets drawn down (paid to the builder) for the work the builder has just completed.
If for some reason the builder goes out of business at, say, the second stage (plate high) the money left over is more than enough to complete the construction of your house. Please note there is also a requirement of the builder to have insurance to cover you for this if it does occur. The banks in this case do make sure you are completely protected and that you will get your home as promised.
The term “house and land package” comes from the fact you can buy the land from Mr Joe Bloggs and get the construction from Miss Fancypants. The package comes from when your broker puts them together to apply for finance.
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