Building a New Home
Building a new home is a pretty exciting process, and it's no surprise that so many of our clients are now turning to builds to get the type of house they want!
There are plenty of different options when it comes to building, but two of the most common ones are "House & Land Packages" and "Turnkey" properties.
Let's have a look at what they are, and how they're different...
House & Land Package
With sections and land a little bit more challenging to come by in recent years, many builders are now partnering with land developers for the right to buy sections, and keeping it easy for clients to put together a "package" deal for the house and the land as a fully inclusive offering.
Generally banks love these, as they are all inclusive and don't usually have "unforeseen" additional costs come up throughout the build.
For example, a House & land package might be for $1M - $500K for the land and $500K for the house, just to keep things simple. The process is usually that the client will agree on the overall price with the builder, and then when the land has a title, they will purchase the land off the developer (and own the land at the beginning of the process). We'll arrange this from a finance perspective for you.
The builder then begins the build, and payments for this are drawn down under a standard progress payment schedule, at agreed milestones of the build. Borrowers will pay a floating rate on the funds as they are drawn down.
At the final stage of the build, when all payments are made, the new homeowners move in upon completion and Code of Compliance (when the council are happy the building has been built to code).
What's a Turnkey?
A "Turnkey" property gets its name by the action you can take at the completion of the project - all you need to do is "turn the key" and walk in!
Generally a true turnkey property is built by a developer, these days often as a townhouse or a block of several properties at once.
The key difference with a turnkey is that you pay a deposit on signing of the Sale & Purchase Agreement, generally around 10%, and the remainder of the money is not paid to the vendor (seller) until you takeover the property.
The key benefit to this is that you are not bearing the cost of a loan for the section and build while the construction work is being carried out. This suits some buyers better, however with a turnkey property there is often also less choice and changes you can make to the build itself.
It's a little easier from a funding perspective as we don't factor in the same "cost over runs" that we would with a standard fixed price build (or house & land package)
What's best for you?
It depends a lot on your situation and what your main drivers are...
- If you're looking for a lot of choice around the house you build, and/or you have a specific section or development in mind, perhaps a slightly shorter build time, a House & Land package is often the best option
- If you want simplicity, and to pay a bit less up front, with perhaps a longer settlement date, then a Turnkey might work better
We can also discuss which option might be best for you and your family, so get in touch with us for a friendly chat through!
Claire, Greg & The My Mortgage Team