Are you weighing up your options – building your own home or buying an existing home.

Let’s take a look at how the lending differs for each home loan option.

What are the differences between the criteria for home loans for construction and home loans for buying an existing property?

Ok, so here is the T – Construction loans are exempt from the LVR (Loan to Value Ratio) policy – which means that technically you can apply for a construction home loan with under 20% deposit right now, whether you are accepted or not is another matter entirely. You will also need to provide more paperwork on top of the usual paperwork, you will also need:

• A fixed-price contract, from your builder 
• Consent from the council 
• Plans for your amazing new home
• A copy of the builder’s liability insurance

This is not the case for the purchasing of an existing home as of right now – 24.01.22. You must have at least 20% deposit and you will only need the regular paperwork. 

What are the differences between processes for home loans for construction and home loans for buying an existing property?

Both home loan processes are the same from an application point of view, however, they will differ with how they are drawn down and you will need more paperwork for a constriction home loan as detailed above. 

Construction home loans: 

When you are building your home loan may be split into two parts. One part for purchasing the land and one part for building the home. This is because there are usually two different settlement dates for your purchase, one settlement for the land and one for the build itself. The portion of your loan attributed to building the house may also be drawn down in parts as you are invoiced by the building team.  If you want to know more about this see our Construction Loans post. 

Existing Home loans: 

Generally speaking the entire home loan, in this case, is drawn down in one lump sum to be paid to the vendors. You will only have to complete one application and generally, once you are unconditionally approved you can go ahead and buy the home you love. 

What are the differences between the Kaianga Ora grants for home loans for construction and home loans for buying an existing property?

If you are a first home buyer you can qualify for the first home buyers grant, below are the details of what you can qualify for. 

If you are looking at purchasing an existing home (a home that is already built) you can get $1000 for every year you have been contributing between 3 & 5 years. 

3 years contributing = $3000 

4 years contributing = $4000 

5 years contributing = $5000 

$5000 is the most you can receive for contributions for 5  years or more. 

If you are looking at building a home or purchasing a home that is less than 6 months old, you can receive $2000 for every year you have been contributing for up to 5 years.

3 years contributing = $6000 

4 years contributing = $8000 

5 years contributing = $10,000 

$10,000 is the most you can receive for contributions for 5 years or more.

Click here to learn more about the Kaianga Ora Grant (formally the first home buyers grant)

What are the differences between the timelines for home loans for construction and home loans for buying an existing property?

Both loans require paperwork and take time however, to build your own home right now, as of Jan 2022 it’s a long game, a lot more people are looking at this option and builders are busy, subcontractors are busy as well. If you are looking at construction, it can take a year to 18months from applying for finance to the move-in date. This does not count the time you take to find the piece of land, choose the builder and design the home. A building home loan can also come with its unexpected spending, as prices rise and perhaps changes are made to the design of the home while it’s under construction. 
Compare that to, applying for a home loan, being given unconditional pre-approval, finding and home and putting an offer in and crossing your fingers. Purchasing an existing home does come with the added downfall of your offers not being accepted and missing out on the home of your dreams and having to put offers on home after home – which can take however long it takes for you to have an offer accepted on a home you would like to live in.

In Summary:

We believe that both the purchasing of an existing home and building your own home have benefits and pitfalls, you as a family or individual need to decide what works best for your needs and do that. This is where we can help, if you’re undecided then book in for a chat and we can talk to you more in-depth about the two options and how they work with your own unique financial position.

While we’re home loan experts, our blog posts are for general information purposes only and are not intended as financial advice. If at any stage you need personalised advice, get in touch on 06 8788 4444 or Ben or Mark.