Building a new home in the stunning Hunter Valley is an exciting milestone, but figuring out how to finance it can feel overwhelming. With so many loan options, grants and financial considerations, it’s easy to get lost in the fine print.
Securing the right funding can make all the difference in turning your vision into reality. This guide will walk you through the best ways to finance your home build so you can focus on what really matters—creating a space you love.
What Are Land Loans?
Some lenders offer land loans to finance land purchases. These can be combined with construction home loans to finance your build. Land loans offer a flexible home loan option where you can choose from standard variable or fixed interest rates or split your loan between the two.
Some lenders allow you to make interest-only repayments for a set period.
However, because lenders consider this type of home loan to be riskier, they often come with stricter lending conditions, such as larger deposit requirements and higher interest rates.
Using Construction Home Loans to Pay for Your Dream Home
Construction loans allow you to draw upon funds as your build progresses rather than receiving it in a lump sum as you would with a traditional home loan. Also commonly referred to as a building loan, this type of finance can be used for new builds or major renovations on an established property.
This type of loan offers greater flexibility than a traditional home loan. As you receive progress payments during construction, you only have to pay interest-only repayments on the amount drawn down for construction costs. Once the build is complete, the loan converts to a regular home loan where you pay both the principal and interest. Lenders may require mortgage insurance (LMI) for construction loans if your deposit is below 20%.
The Risks of Construction Loans
While the idea of interest-only payments is appealing, construction home loans often have higher interest rates than traditional home loans, and because it’s hard to value a home that hasn’t yet been built, lenders often charge higher valuation fees.
The other risk of a construction loan is that lenders often set a maximum timeframe for the building process. Therefore, any delays that lead to additional costs could see you having to find other ways of covering the gap.
Grants to Help First-Time Builders Own Their Homes
First-time homeowners in the Hunter Valley may be eligible for several different types of government assistance to help finance their new home builds.
The First Home Buyers Assistance Scheme in NSW may reduce or eliminate transfer duty (stamp duty) for eligible buyers, subject to price thresholds. If you purchase vacant land to build a home, you can receive an exemption for land valued up to $350,000 and a concessional rate for land valued between $350,000 and $450,000.
Another scheme is the First Home Owner Grant (New Home), which provides $10,000 towards the cost of a new home, if you meet specific requirements. This grant applies to newly built homes valued up to $750,000. You can check the Revenue NSW website for more information on these grants and the eligibility requirements.
The Federal Government also offers the First Home Guarantee, which enables eligible home buyers to build a home with a 5% deposit without paying lender’s mortgage insurance (LMI). You can find out if you’re eligible on the Housing Australia website.
Using Equity to Finance an Investment Property
Using the equity you’ve built in your current home loan can be a smart way to finance a new build without needing to have a large cash deposit or to complete a knockdown rebuild. There are several ways to access equity, but first, you’ll need an understanding of your usable equity.
Lenders typically allow loans of up to 80% of a home’s value without LMI. You can then take out a home equity loan against your current property, get cash out and refinance or open a line of credit.
If this option appeals, speak to your lender about how they can help you build a new home.
How Does Financing Work for House and Land Packages?
House and land packages usually come with fixed-price contracts, which can lead to a faster and more straightforward approval process with lenders. They’re often financed with a 2-part home loan—the land loan and construction loan, which lenders often bundle together. Some lenders offer lower deposit requirements (as little as 5-10%) due to the fixed pricing, but this varies based on lending policies.
Our Tips for Securing the Best Home Loan Rates
Even a small difference in interest rates adds up over a loan term. Therefore, it’s critical to do your research to secure the best interest rate you possibly can before your home-building journey begins.
Other key considerations should include:
- Compare loan products and features from multiple lenders
- Use a mortgage broker to find the best deal
- Improve your credit score before applying for home loans
- Save as much as you can to avoid the need for LMI
- Consider fixed, variable and split home loan rates
- Pay off your debts before you apply
Why Your Choice of Builder Matters in the Financing Process
The builder you choose can impact your financing and loan approval. Your builder will need to provide a fixed-price contract with a detailed construction timeline and payment schedule. They also need to be able to provide important documents like council-approved plans as required. Your chosen builder must also be on top of their paperwork, submitting invoices for each stage of construction in the case of a construction loan.
Your builder must meet lender requirements, including being licensed, financially stable, and properly credentialed.
Using a reputable and experienced builder for your new home build will help prevent construction delays, cost overruns and ensure your build stays on track with minimal fuss.
We Make Your Vision a Reality
There are several ways to finance your Hunter Valley new home build, from construction loans to using equity in your existing home. However, the success of your build largely depends on the builder you choose.
One benefit of choosing Vision Homes is that we’re local to the Hunter Valley. We also offer a fixed-price guarantee so that there are no costly surprises when it comes to building your dream home. This makes the process of securing finance faster and easier.
Visit our website to see our range of home designs for the Hunter Valley, or see where you can view our work in person at one of our Thornton display homes.
Frequently Asked Questions
How do you finance a new building?
You can finance a new home build using land and construction loans with the equity in an existing home and ease financial pressure with government grants.
How much deposit do I need for a construction loan?
The deposit required for a construction loan depends on your bank or lender. However, if you have less than 20% deposit, you will generally need lender’s mortgage insurance.
What is the best way to finance land and build a house?
A land loan is a great way to purchase land to build a house. You can then use a construction loan at a later date to fund the building process.