The great thing about building a new home is that you can choose your own layout and features rather than simply inheriting them. In addition, unlike renovating, everything is brand new so you don’t have asbestos, termites, sinking foundations, old electrical wiring, cracked walls or any other number of problems to contend with.
Whether it’s a knockdown rebuild of your existing property or you have bought land on which to build a new house, here are the key things you need to know before you begin.
Determine your budget
Before you make any decisions, the first step is to speak with your Smartline Adviser so you know how much money you can spend on your new build. Your Adviser will be able to determine your borrowing capacity according to your current financial circumstances.
Choose the type of build
Project home: This means choosing from a selection of completed home designs in brochures or at display villages. Designs are not based on your specific needs or preferences and while you can typically customise on some things, customisation tends to be quite expensive. The quality of construction, workmanship and aesthetic appeal may be lower than for an architecturally-designed home; however, these builds tend to be quicker, involve less decision-making and admin, and are significantly cheaper.
Architect-designed home: This involves engaging an architect to design your home from scratch to suit your specific needs, personal preferences and the site’s unique features and aspect. You can also choose your own builder, which usually results in a high level of personal commitment and workmanship. The negative aspect of this option is that it is typically a long and expensive process involving a lot of decision-making and administration.
Consider the costs
Costs are primarily dependent on the size of the new house, and the quality and complexity of the build. Other important elements that will affect the cost include the type of layout, your bushfire zoning, the amount of steel required, the type of external cladding and internal finishes, site access, the quality of your builder and the style of the home you choose.
A project home can cost around $1,600 per square metre and upwards, depending on which company you go with and how many ‘extras and upgrades’ you opt for.1
An architecturally-designed home can cost anywhere from $2,000 per square metre right up to $12,000 or more per square metre.1 Around 80 per cent of costs are typically due to labour and materials, with the other 20 per cent related to fixtures and fittings.
Regardless of the type of build, be aware that there are almost always extra costs involved for landscaping, demolition, fencing, site preparation, driveways and retaining walls, as well as council permits and certificates. You may also have the extra cost of renting elsewhere during the build.
Early on in the process, you will need to pre-choose the design elements you want – such as colour schemes, materials and fixtures – purely on concept. This isn’t as easy as it sounds and you may decide to pay for an interior designer to help you.
Don’t over- or under-capitalise
Overcapitalising occurs when the cost of the build outweighs its final market value, making it a poor investment. Undercapitalising, on the other hand, is false economy; if you don’t spend enough, you risk devaluing your property by making it look ‘cheap’.
The majority of homeowners struggle to get the balance right.2 You can generally avoid both problems by ensuring your renovation brings your house roughly in line with the properties around it. That is, the level of design and quality of fittings, fixtures and appliances you choose shouldn’t differ wildly to what you see in other properties in your area.
Planning and process
- Work out exactly what you want from your new home, and make a list of elements and features in priority order – understand your ‘must-haves’ versus ‘nice to haves’.
- Research builders experienced in the type of home you require. Ensure they have experience in the land shape, style, size and quality of home you are looking for.
- Get at least three quotes. It is quite normal to pay for a quote and this will typically ensure it is detailed and accurate. It should have a detailed list of items that have been properly costed by suppliers and subcontractors, and have minimal provisional sums or estimates.
- Ensure the builder you choose holds the correct licence, permits and insurance and check they are not the subject of complaints or a party in any disputes (you can ask your state or territory’s relevant government building authority).
- Most building works require a contract between yourself and the builder. The relevant government building authority in your state or territory will have a comprehensive guide on how to enter a building contract and what obligations apply to you and your builder. Ensure you understand the details of the contract before you sign.
- There are a number of other certificates and checks required for a new build, which vary depending on your local council. You may need to lodge a development application (DA) to gain approval for the build from your local council. DAs typically include architectural plans as well as a significant amount of other documentation and can take quite some months to arrange. For very straightforward builds, you may be able to get fast approval (a Complying Development Certificate) from your council.
Financing your build
You will almost always use a construction loan for a new build and these usually require a 20 per cent deposit. As opposed to a standard home loan where you receive a lump sum payment, construction loans have a progressive drawdown, which means that your lender releases a portion of the loan funds as required at each stage of the construction process.
There are usually five stages of construction at which you will draw down your loan: slab poured, frame up, lock up, internal fit-out and practical completion. Most lenders will send a valuer to inspect the site at each stage and ensure work has been completed satisfactorily. The lender may then pay the builder directly.
Key features of a construction loan:
- Interest rates may be slightly higher for a construction loan than for a typical loan refinance; however, interest is only charged on the amount drawn down up until that date, rather than on the full loan amount.
- Loan repayments are usually interest-only during the construction period, keeping repayments as small as possible during the build. Upon completion, you should be able to convert your loan to a standard principal and interest loan with normal interest rates.
- You will need to show your lender the council-approved building plans and a fixed-price domestic building contract before your loan can be approved. Your builder will also need to provide proof of registration and a certificate of currency of insurance.
Forewarned is forearmed – building can be stressful. Some problems are likely to crop up throughout the build that will require your attention and negotiation. Sometimes bad weather and/or builder mistakes can end up costing you more, as can new problems such as discovering sandstone where your builder had planned to dig.
Keep calm and look after yourself during this period. Prepare yourself and budget for unforeseen costs so that you don’t become financially stressed if they occur. Ideally, you will be living close enough so you can monitor the building works and be on hand to discuss any considerations with your builder.
Always arrange preapproval for your loan through your Smartline Adviser before you commit to anything, to ensure you can finance the whole project. Construction loans can be more complex than standard home loans, so using an experienced mortgage advisor is highly recommended.
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