It’s worth noting that the construction finance differs to the usual finance needed for first homebuyers who buy an established property and it’s best to seek the services of a finance broker that specialises in this area to help guide you through it.
There are different ways to structure the purchase as follows:
1. Purchase the block of land first and then choose a builder; or
2. Sign up for a house and land package, which bundles the block and the builder together.
One very important thing to be aware of when looking at these two options is that the fixed price building contract (the contract from the builder) is a requirement for first home buyers seeking eligibility for the first home owners grant as well as their exemption from paying stamp duty.
That means that if you were to purchase your block of land without a fixed price building contract, you will pay stamp duty and won’t be able to access the first home owners grant for settlement. There is nothing wrong with choosing this option if you have the funds available to pay stamp duty – but most first home buyers simply don’t, and rely on the first home owners grant (currently $10,000 in Western Australia) to contribute to some of the purchase costs.
Technically, the first home owners grant is payable at the first progress payment, also known as “slab down”, which is too late in the transaction for some buyers.
The other issue with buying your block of land first – without a building contract - is that you effectively settle on the land way before the construction on your new home starts, meaning you are paying interest on the purchase of the land for this period too. This can have an adverse affect on first homebuyers who still need to pay rent, as well as making loan repayments. If you structure the loan this way, it essentially means you may be more out of pocket than necessary for a longer period of time.
Packaging the purchase as a house and land package means that the purchaser has a signed fixed price building contract by the time the settlement on the land occurs, effectively classing them as a first home buyer for all intents and purposes ie. To satisfy a requirement for the first home owners grant and to be exempt from stamp duty on the purchase.
Some lenders make the equivalent of the first home buyers grant funds ($10k) available to the purchasers settlement agent, meaning these funds are “on account” at the time of settlement on the land and can be used towards settlement fees.
So what does this all mean for the first homebuyer? Well, put simply, it means:
- They will be exempt from paying stamp duty
- With first home owner grant fund made available at land settlement, they don’t need as much of their own funds to contribute towards settlement costs; and
- They are free of the hassles of completing forms to claim back stamp duty at a later stage.
It’s important to choose a finance broker that specialises in construction finance to step you through all of the nuances of financing your first new home and avoid any unnecessary costs or out of pocket expenses. At Iconic Home Loans, our brokers are experts in this field, and will be able to find the best lender to suit your requirement.
Give us a call today to discuss your situation.