Jaimi: Welcome to Home Building Like a Boss, the podcast dedicated to helping first home buyers in Perth build their dream home with ease and excitement. I'm Jamie, your host and go to building broker. Are you ready to feel empowered, in control and excited about your building journey? I'll help guide you with expert advice, insider tips and tricks and real life stories to help you navigate the confusing world of home building.
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Hello, and welcome back to another episode. I'm your host, Jamie, as always. And this week I have Tanya joining me again for another finance
Tania: episode. Hi, everybody.
Jaimi: All right. On today's episode, we are going to chat about the difference between established loans and construction loans and why it's important to work with a broker Who understands construction loans.
If you were looking at building, basically don't want to end up with a broker who does establish loans. And he's trying to do a construction loan for you. I've had previous clients who have nominated their own finance broker. And they've purely only mostly ever done established loans and we've had so many issues that basically like everything just goes tits up essentially and finance and the whole process and the build you want to make sure it all works together your finance broker needs to understand how and like what construction loans are because they're so different to established so Tanya give us a brief rundown on Why and how establishing construction loans are different.
Construction
Tania: loans are very complex, but I, I guess when I became a finance broker, I only did construction loans. So to me, because of my experience, it's really easy. But I understand why to a broker that does primarily established loans, why it's so confusing. Yeah. They are completely different. Even the setup of how you would put it through the system to apply for the client will be completely different to an easy established loan.
I'm saying easy established loan because I know how much harder it is to do construction and A lot more work. So the difference between the two is with an established loan, you would have like a contract of sale for the property that you've already made an offer on. You just order a valuation on that property and you're basically like good to go.
You're not waiting for contracts to be written up. You're not waiting for the client to design the home. Yeah. You're not waiting on certain things and it's. Titles. Yeah, the block. Yeah. Stuff like that. Construction is just a whole other game. So you need a broker that does specializing construction because otherwise there'll just be so many delays and potential stuff ups with the deposit amount that you need, the progress payments.
There's just a lot of work that goes into construction loans. And it's obviously
Jaimi: two contracts instead of one contract. Like when you buy established, you only have one contract for the house when you go for construction loan. You have a land contract and you have a build
Tania: contract. Yeah. And even the payments, like when you buy established, the bank's just handing you like that 400, 000 to buy the established property.
But with construction, the builder is paid in installments depending on what stage the construction is at. So it is quite complex because a broker needs to get involved at each stage to pay that invoice to make sure it looks correct. So there is a lot of work, but I'll go through it with you. So first off.
When you're trying to decide whether to go establish or build, the assessment is the exact same. So your borrowing ability would be the exact same regardless. Your deposit amount would be different because of stamp duty and probably some other factors as well, but stamp duty is the main one. Secondly would be the loan products.
So not all banks do construction loans. Some hate it because it is so hard, whereas other banks are really good in construction and they love doing construction. So yeah, different loan products and different lenders. Also for the stamp duty, it is. It's quite a big difference. So just as an example, if you're a first home buyer and you're going for a established property for 500, 000, let's use that as an example, your stamp duty would be 13, 433.
That is the amount that's added on top of your deposit amount. Yeah.
Jaimi: Your 5 percent genuine savings
Tania: deposit. Yes. And when you are building, as an example, so you still have a 500, 000 house and land package in total, but let's just say your block is 200, 000, you'll have no stamp duty to pay. Yes,
Jaimi: and that's because when you go established, you have no stamp duty.
on a property up until 430, 000. So essentially you're paying a pro rated amount for a first home buyer from 430, 000 to 500, 000. If we're using that as an example, which is roughly the 13, 000 that Tanya mentioned of Stamp Duty that you're paying. So you do have to save a little bit of extra money to go establish.
So building is less on your upfront costs along with the 10, 000 first home owners grant as well that you get with building.
Tania: Yes, because you're going established and you want that 10, 000 grant, you need a brand new home. And guess what? There is none. There is none. Not in the
Jaimi: established market. Not these days.
No, the established market is very tough at the moment. Very very tough. And all the houses are very very old. We have a lot of clients coming up to us now at the moment who are like, Oh, I tried looking established, but I can't find anything. Can I build?
Tania: Yes. And they end up building and they're like, Oh, this is great.
Cause it's a brand new home. No renovations needed. Deposits less. It's a lot better. Yeah.
Jaimi: And your initial deposits as a first home buyer are also less.
Tania: So it also helps. Yeah, that's true. I'm getting a lot of inquiries. Um, for people that, yeah, they were trying to search for months and they would line up and there'll be like 50 people also interested in that property.
So then they just go towards building and yeah, brand new home, brand new toilet. That's what excites me about building like a toilet that no one's used. That's so
Jaimi: funny. It's the little things. Yeah. Amazing. Was there any other important info that. We need to share about establishing construction loans for the people.
Tania: Nothing that I can think of right now, but just keep in mind, it's very important to use a broker that is actually specializing in construction loans. Yeah.
Jaimi: When you're building. Yes. That is the number one tip. They're very different. Work with a broker who knows construction
Tania: loans. They are very complex and yeah, if you just try use your own broker who's established and they're trying to make it out to seem that they know a lot of construction, I'd probably ask for proof because, uh, yeah, it's very difficult.
So just make sure that. You're finding, you're putting your financial needs in the hands of someone that's actually capable of helping you with your house on land. Yeah. And get
Jaimi: what you need. Yeah. Amazing. And if you need help with construction loans, message either of us on Instagram, or we'll be able to help you.
Thanks for joining Tanya. Thanks. Bye. so much for tuning in to the home building like a boss podcast. I hope you enjoyed today's episode and learn something new. Remember you've got this and I've got your back. Until next time, stay inspired, stay informed, and stay confident on your building journey. I can't wait to chat with you on the next episode.
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