House & Land Finance: What You Really Need to Know Before Signing

 Welcome to Home Building Like a Boss, the podcast dedicated to helping first home buyers in Perth build their dream home with ease and excitement. I’m Jaimi, your host and go to building broker. Are you ready to feel empowered, in control and excited about your building journey? I’ll help guide you with expert advice, insider tips and tricks and real life stories to help you navigate the confusing world of home building.

Tune in as I take you on the journey to building your home like a boss. Thanks for tuning in to another episode. Today we are going to dive into finance options for house and land packages and I am joined here again with Tanya, our finance broker. Hi guys, I’m so excited for this episode because no one understands house and land package finance so I’m so happy that we’re going through it.

Yeah, it’s very different obviously to established and yeah, it’s good to be able to get an understanding on how the differences and how that works for house and land packages. So I guess the first thing that. I want to talk about with house and land packages is a huge misconception on what house and land packages are.

So a lot of people get stuck and tricked into, and this comes into builders marketing. They think house and land packages that you have to be stuck with that builder, but essentially builders are just using those house and land packages for marketing. And a house and land package is Basically only a land contract and a build contract being lodged for finance at the same time.

You can get any block and you can get any builder, any plan, any design, and put them together with a finance broker and lodge your two contracts at the same time for finance. That is a house and land package versus just financing the block on its own and then just the build, which we’ll dive into the differences on that.

In a little minute, when we get into that, your house and land packages, you do not have to be stuck with a builder or their marketing or their packages on their website, you can customize your own house and land package, which as a broker is what we help you through the process. So Tanya, I guess, so let’s start off with house and land packages on the side of finance.

Yes. So, um, firstly, I would not do house and land package separate. So I wouldn’t do a land only. I’m going to go ahead and do a mortgage and then go ahead and do a build mortgage. The reason being is when you’re doing a house and land package together, the builder is going to help you make sure that that block can actually fit that property, that house, which I’m sure you can explain a little bit more about.

So that means that there’s less risk and you are more confident that you can actually get the house on land package that you want. So that’s reason number one why I wouldn’t do them separately. Yeah, so what you don’t end up, yeah, with a block and then no house essentially. Yes, especially if you’re borrowing is also affected by that.

But it also makes sure that if you were on target to spend. 600, 000 on your house and land. If you’re doing them together, you know, that you’re going to stick within that budget. Cause you’re doing house and land together, but if you’re doing it separately, you might settle on that block and then you’ll build six months later costs 50, 000 more.

Now you’re over budget. Yeah. So that’s also why I wouldn’t recommend doing them separately. Also, if you do it separately, you are paying principal and interest on, for example, the land portion, and then you’re paying interest only on the build portion. Whereas if you do them together, you’re paying interest only on both, which is going to be more affordable for you.

while your house is being built, especially if you’re renting or paying board or anything like that. Yeah. Also, if you do it separately, there’s just so many, so many, if you’re doing it separately, you’ll need a bigger deposit because you won’t be able to take advantage of going under any special schemes.

So if you needed a 5 percent deposit for a house on land package to use. The first homeowner, um, first home buyer guarantee scheme. You won’t be able to use that if you’re doing house and land separately either. So you need to come up with a larger deposit. And for land only, most of the time you need a 10 percent deposit upfront.

Yeah. Which also means you might have to pay lenders mortgage insurance. So the whole thing can just be more expensive if you don’t do them together. Yeah. And with the, especially for first time buyers with the first homeowner’s grant, you then have to pay stamp duty. Upfront and then that gets reimbursed once you do your building contract finance.

Is that right? Yeah. So it can just be overall a more expensive journey and you’re just doing things unnecessarily. So much easier to do them together. That’s a huge misconception. A lot of people, I’ll just get the land and I’ll sit on it and I’ll do this and I’ll work it out later, but it is a lot harder and it can get a lot more expensive.

And what are like your deposit requirements around house and land packages? So the banks would need 5 percent genuine savings before they would even look at you for a pre approval before we can even lodge you to a bank. So that’s the minimum, depending on your situation, you might have to pay stamp duty.

If your block is over 300, 000, um, or if you’re a second home buyer, then you’re, you’re paying stamp duty anyway, to build only on the block, only on the block. So that’s a perk of building instead of going established as well as with established, you’re going to be paying stamp duty on the entire value of the property.

But with house and land packages, you’re only paying stamp duty on the land portion, which would be a lot less. So it saves you money there. There are two schemes available. So the first home guarantee scheme for first home buyers, you need 5 percent deposit, and then your 10, 000 first home in a grant, if you are eligible for that, we’ll get deducted from your final deposit amount.

So that helps you also the single parent scheme as they call it, but the actual name is family home guarantee scheme. That is a 2 percent deposit. And again, the 10, 000 grant can be used towards your deposit to help you with your, your 2%. And that’s actually open to second home buyers as well. So it’s not just first home buyers, but it’s only home guarantee.

Yep. So they’re the minimums that you need, but if you were to purchase land only, minimum you need 10 percent deposit. Yeah. Huge difference. Yeah. Yeah. Yeah. It does not work out better. No. And can you explain to us? a bit about how delayed titles and untitled land works in the finance world and how with banks and access and valuers and things like that.

Yes. So at the moment there are so many blocks that are getting delayed. And that often means that if we were expecting titles in June, then and. They’re delayed. We’re probably not getting them to like August, September, and your pre approval will only last for 90 days with the bank. So at the moment, because of how the market is, um, I am trying to filter out the lenders that will lapse that pre approval.

because I don’t want to have to spend time, um, having to reapply for a pre approval again, or waste the client’s time putting another inquiry on their credit file. So we’re just finding lenders that, um, will still give you formal approval, which is great, even if the block’s not titled. Yeah. As long as they can access the block to value it, they can still give you formal approval.

You can still sign all of your Loan documents and your mortgages, but they just won’t settle on the block until it’s titled. Yep. And does this include clients that are under the scheme or no? No. Sadly, the scheme will not allow it. Yeah. So it’s like catch 22. Yes. So if you’re outside of the scheme, you can get formal approval, even if the block isn’t titled yet.

But if it’s under the scheme, um, it’s just part of the scheme conditions. They won’t give you formal until the title is issued. So we may have to lodge again for the approval, but again, it’s just your broker has to find you the lender that doesn’t need you to reapply as such. Yep. Some banks just ask for new pay slips and a new bank statement and you don’t actually have to reapply for the whole loan altogether.

Yep. Okay, cool. What finance options are available for house and land package? So we are a little bit restricted when we’re building. So there’s only one bank that actually allows fixed rates during construction. Um, and that bank isn’t even part of the scheme, so we don’t actually use them that much. Most of the time, your interest rate during construction will be variable, so it can go up or down at any time, which means your repayments can also fluctuate at any time.

During construction, your loan is going to be interest only. Which is great because you’re probably paying rent or board so you don’t actually have to make your full mortgage repayment until you get your house keys But if you do have the capacity to pay principal and interest on your mortgage because it’s variable You can put the extra money on and you won’t be penalized for making those extra repayments and most of the time we go for 30 home loans just to make it more affordable.

30 home loans. Sorry? 30 home loans. Did I say that? Yeah. I was meant to say 30 year term. 30 year term. I was like, wow, 30 home loans. That’s great. You must be wealthy. That’s so funny. 30 year terms. Yes. That makes more sense. Yeah. Cool. Yeah. But you can pay it off at any time. Yeah. So if you end up. Um, you know, paying your mortgage within 25 years, then you’re saving five years on interest.

Yep. Great. And how do offset accounts work with house and land packages? Yes. Um, so a lot of people are getting offset accounts, but I don’t think some people actually understand how it works because they’ll come to the meeting with me and they’ll say, we really want an offset account, um, so that we can save on interest.

And I’m like, great. How much are you planning on putting in your offset account? And they’re like, Oh, maybe like 2, 000. That doesn’t really do an awful lot when your mortgage is like 600, 000. Yeah. It’s not touching the sides. Yeah. And the offset account will cost you between 299 to 395 a year, depending on the bank.

So if you’re just having 2, 000 in the offset account to save you an interest. You’re probably not even saving the annual fee that you pay so it has to be like a good amount like at least maybe Five to ten thousand dollars would depending on your home loan would actually save you money So the way that it would work is let’s just say your mortgage is six hundred thousand That’s your loan amount But you have ten thousand dollars saved in your offset account the bank will calculate your interest payable for the month based on you having a 590 loan amount because they can see that you’re holding 10, 000 in savings.

Um, so it helps you save on interest and you have access to those funds instead of putting them directly onto your home loan. Yeah. Yeah. I have an offset account. I love my offset account. Do I use it as much as I should? No. Yeah. I mean, yeah, it all depends on. What you got in there, but it’s a benefit, I guess.

Yeah, without having to put it onto your loan. Mm hmm. Yeah. Yeah, cool All right. Well, is there any other tips or advice you have around finance and house and land packages? I would just say if you are still saving just to save as much as you can in the shortest time frame That you can so if that means you’re not going out hanging out with your friends for a couple months just Do it so that you can see how much money you actually waste doing those little activities because we just want you to get into your home as quickly as possible.

And the longer you wait, the more in this market, the cost of your land and the cost of your build is just increasing so quickly. So the quicker you save. The more affordable your packet is going to be than if you wait any longer. Yep. Absolutely. Great advice. My whole episode last week was around that.

The longer you wait, the more expensive it is. But the quicker you get in and the time that you spend in the market, you’re going to get equity in your house rather than paying more for your house. Yes. Well, thank you so much for joining me again this week. Thank you so much for tuning in to the Home Building Like a Boss podcast.

I hope you enjoyed today’s episode and learned something new. Remember, you’ve got this and I’ve got your back. Until next time, stay inspired, stay informed, and stay confident on your building journey. I can’t wait to chat with you on the next episode. Don’t forget to check out the show notes for more information and free resources.

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