A construction loan, or builder loan, often called a “Home and Land Package“, is a type of home loan where the funds for your new home are drawn down as ‘progress payments’ as your property is being built. The main difference between a construction loan and a ]link url=””]vacant land loan[/link] is the timeframe to build the property, so both the build and land contracts are presented to the lender (often called a ‘two contract loan’).
The lender will usually set a maximum time limit for you to completely draw down on your loan (until the property is completed). If taking out just a land loan, you are not obligated to build on your vacant land once purchased.
Note: The FAQ on Construction Loans details how the construction loan is managed, and it details the relationship between the builder and the lender.
House and Land Options
A house and land package can come in two varieties. One option – the ‘turnkey’ solution usually made available via display villages and other builders – typically offers a newly built home on a particular lot of land, whereas the second option provides you with the flexibility to buy the vacant land first, then build a home from a set range of builders and designs. In many cases you will purchase land long before you build your home despite it being part of a home and land contract, so the lending conditions and criteria varies enormously from one borrower to another.
The benefit of a house and land package is that it gives you the opportunity to personalise your home to your taste. As you’ll be purchasing both the house and land from the same vendor, and the process can be more streamlined than purchasing land separately than engaging a builder directly (or engaging with the daunting ‘Owner Build’ process).
Stamp Duty on New Homes
When buying a house and land package, and as long as construction has not already started on your new home, the stamp duty will only be calculated on the value of the vacant land you buy. This often presents considerable savings.
Considerations
While a house and land package can be an exciting and affordable choice, there are some drawbacks and hidden costs to watch out for. When looking at display homes for inspiration, it’s important to remember that some features, such as landscaping or even a driveway, may come at an extra cost. To avoid any hidden costs in your house and land package, you can ask your builder for a detailed breakdown in the price you’re being quoted.
