Do you like the idea of building your own home?
It's hard to beat unwrapping that out of the box and moving in to something that's designed and built just for you! But just like colours, door handles and most other things when building a house, there are lots of different finance options and ways that things can be done in regard to how the house is paid for.
This is where we come in - My Mortgage's job is to provide some clarity on which options are available to you and explain exactly how that process works. We've outlined a few of the key things below, as well as some questions we're asked often.You know what else? All of the My Mortgage team have recently embarked on building new houses, so if anyone can understand the ins and outs of the process of building and financing a build properly then it's us!
Types of build contracts
- House and Land Package - This is just like buying an existing home as you sign up, the house gets built, then you move in to and pay for the house once completed. An advantage here is that most banks will lend up to 90% on these. You normally pay a deposit to secure the package (10%), and the remainder of the funds are due upon completion.
- Turn key - This is similar to the above, although you may already own the land and you sign a contract with a builder which means exactly what it says... they build it and the next thing you have to do (after paying for it of course) is to turn the key and move in. Everything is taken care of including carpets/curtains etc
- Fixed Price Build - This is the most common and generally offered as a package by housing companies. You work together to design a house for your section, you pay a deposit and then they start building the house and you pay in stages as it progresses. Normally there are some exclusions like Carpets/landscaping that you'll need to cover yourself but banks are wary of too many exclusions, they want to lend on a fixed price, so the more items included in your contract the better.
- Owner Managed Build - This is where you contract all of the trades directly and project manage the construction yourself. If you've got experience doing this and a good deposit then the banks are happy to lend providing you've covered all of your bases and built in a contingency. As you can imagine these projects can go way over budget so if you've got a small deposit and no experience... they're nearly impossible to finance.
- Kitset - Similar to the above, this is where you buy just a kitset from a company then you need to hire all of the trades to put it all together for you. If you enlist a builder to give you a fixed price on completing the build from the kitset then this is workable. If not then you're in the same boat as the Owner managed build needing a large deposit and construction experience.
- Transportable home - These are becoming more popular as a cost effective option for getting a small to medium sized house. The only issue with funding these is that the bank can't take a mortgage over a house which is not on your land... so we need to work with the company building to ensure your payments are structured correctly to allow you to make this work.
- Relocating an existing house - This is one of the cheapest ways of getting a house on your land. As with the transportable the bank won't lend you money on the house until it's on your land. So if you've got the money to pay for the house and to get it to your land then we can get you a mortgage to fund the rest. In fact there are some options to help in between but they're dependent on your personal situation.
If I'm building a house via fixed price contract, will I need to pay rent and meet my mortgage payments at the same time?
The answer here is yes, unless you have somewhere you're able to live rent-free with family or friends during the build process (which might be 6 months or so), you will need to cover both in the meantime. We can help out here with interest only throughout the build, and arranging for a structure to suit you best and allow you to pay the minimum on your home loan until move in day.
I've got mates who are tradies and will do me a good deal. Can I just get the bank to pay them?
In a roundabout way, this is possible if approached the right way. The best and easiest thing to do is speak to your builder who is providing you a contract. They may be able to include your potential tradesperson as a subcontractor for your build, and include this as part of their contract, which keeps the bank happy that the funds they advance will be spent as part of your build.
I've got Kiwisaver, and I heard the Home Start Grant will also pay more if I'm building a new house.
Correct. If you've been in Kiwisaver for 3 years or more, you can use it to purchase a section and build. If you've been contributing for 3 years or more, meet the income and price caps for your region, you can use the Home Start Grant to purchase the section. Keep in mind you can only use these if you're buying a section or a house and land package. If you already own or inherit the section you won't be eligible.
The Home Start Grant does double if you're building. So you can be eligible for up to $10K per person if you've been contributing for 5 years or more. Check out our helpful resources on this below, including price and income caps for the Home Start Grant.
Is it easier to fund a build rather than existing property if I don't have 20% deposit?Because new builds are actually exempt from the LVR restrictions on banks, funding for builds over 80% is much more plentiful than if you're buying an existing property. However all of the usual requirements around higher LVR loans still exist, and the bank needs to see you have plenty of income to cover a new build, ideally low current debt and good account conduct and savings history. If you tick all of those boxes, the banks are happy to lend. Chat to us if you have any questions around how banks will assess your new loan.
That about covers the main ways of getting a new house, as well as some of the most commonly asked questions by our new clients. If there's an option that you think we've missed and would like covered please feel free to get in touch, and if you're thinking about building, take the first step and chat to us about obtaining finance and pre-approval to do so.We can't wait to hear from you!