With our current housing shortage, building your own dream home can look mighty appealing. But what will your bank think and is there any government assistance?
If you are considering building there are several financing options available. We’ll get to these shortly, but firstly a note about LVRs and the HomeStart Grant.
The Reserve Bank LVR rules don’t apply to those building a new home. This exemption applies to both owner-occupied and residential property investors. So this is a great option for those who don’t have the required 40 per cent deposit for an existing property but wish to add to their property investment portfolio.
If you are a first-home buyer and qualify for the Housing NZ HomeStart Grant, then the grant is effectively doubled to $2000 per year of membership in the scheme, of up to $10,000 for five years for each member if you are building.
So, all this considered, here are your financing options (and remember that each bank treats construction loans slightly differently):
Your builder provides a single, fixed price to complete the build. The contract is “all inclusive”. Mortgage repayments need to be paid while the build is being completed, so if you are renting during this process you’ll need to be able to service both your weekly rent and the mounting repayments on the new build. Banks will generally lend between 80 and 90 per cent on the cost of the project.
A Turn-Key Loan (Land and Build Packages)
In this case, the property (land and house) is purchased once completed. A contract is generally entered into before building starts and a deposit paid at this stage. The ownership of the property is transferred from the building developer to you once the house is built.
These can be a little more expensive than the fixed-price contract option, however, there are no mortgage repayments required during the build process. Banks will lend up to 90 per cent of the price of a turn-key project.
In the current market, most banks will lend 80 per cent against a piece of land, assuming it is zoned residential and has the services—power, water, sewerage— available. Most banks will only lend 80% if building will commence on the land within 12 months.
If you are a tradie and are building the home yourself or you are project managing the build, banks will lend between 50 and 80 per cent of the build costs.
There you have it. If you’d like to talk through your dream home with us, we might not be so helpful when it comes to choosing curtain patterns but we can certainly help get the cash so you can order the right curtains.