The decision to build a new home, whether on a vacant block in an established area or as part of a new greenfield development, is an exciting milestone. Looking forward to a brand new home customised just to your needs, with low maintenance costs and all the latest technology and appliances is a great motivation for saving.
The finance structure for building a new home is different from when you purchase an existing home. Construction loans are designed specifically for new homes involving the two stages of building; buying the land and construction of the home. Upon buying the vacant land you may commit to an agreed timeframe to start building, or alternatively pay an additional deposit as a security for the future build.
The structure of the construction component of the loan is based on the final estimated cost which is then broken down into progress payments or draws based on the milestone phases of your new home build. The benefit of this specific structure is that you only pay interest per loan draw down, rather than on the full amount. The stages of construction should be part of your building contract and are typically:
It is important to note with new construction that there is no stamp duty payable on the building component, only duty payable on the land. In addition, if the new construction is part of your investment portfolio, it is possible to claim a high depreciation.
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