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Building Loans for First Time Home Buyers

As a first time home buyer there are many dreams to fulfill, many questions needing answers. Buying your first home is not only exciting but also daunting, especially if you decide to have your dream home built, rather than buying an existing property. Banks have a specific product for people like you, it’s called a building loan.

The products on offer differ from bank to bank and from time to time. All banks usually have special products for first time home buyers, allowing you to get 108% loan to include the transfer and attorney fees. Due to the current financial climate these loans are not available at present, but the economy will improve again. Always confirm with the bank of your choice, or the originator you work with, what is available at present. Property is still the best investment you can make and getting your foot in the door at a young age can determine your long term financial wellbeing.

The changes to home loan products do not mean that you won’t qualify for a building loan as a first time buyer, you simply won’t receive any special concessions. So, where do you start? Find out what the maximum loan is you can afford. Interest rates are (hopefully) in a declining phase but you must always prepare for a worst case scenario, taking into account that interest rates fluctuates. You can find home loan calculators on the internet - on the web sites of the banks or home loan originators.

When you apply for a building loan the bank will assess your financial position to see if you can afford the loan. Very few people can buy their dream home first time round; you may have to accept that and get into the market at a level you can afford. It may even mean that you need to start saving now, getting rid of all other debt before taking on this huge responsibility.

Especially now that 100% loans are not available, you will need money for a deposit and all the other costs involved in buying a home. Not only will you have to pay your loan monthly but also the rates and taxes, insurance and utility deposits. If you use your own builder you will also have to pay for drawing up the building plans, getting them approved and rates and taxes must be paid as soon as the land is registered in your name.

An important point to take note of is that with a building loan you only start paying once the final amount has been paid out, when the building is completed. In the meantime interest is being debited to the home loan as soon as the first payment (draw) is made to the builder. It is in your best interest to pay at least the monthly interest right from the start; if not you may find that there are not sufficient funds left when the final draw is required.

Another option is to buy a property jointly, with friends or family or other business partners – a word of caution – choose your partners carefully. In a case such as this you need to have a contract drawn up by a lawyer to protect the interest of all parties.

So, how does a building loan work? The bank finance the vacant stand and then pay out as the building progress, always making sure that sufficient funds are retained to complete the building. You can either buy your own plot and get a builder to build a house for you, or you can buy in a development, called plot and plan. Either way, you need to make sure that you deal with a reputable builder or company; if not your dream can turn into a nightmare.

The bank will require the approved plans and a quote from the builder before they grant a building loan. The bank’s assessor uses the plans and quote to derive at a valuation or security value. This amount will be used to make a final decision as to granting the building loan. A contract needs to be drawn up between you and the builder stipulating all the details of the building.

Where you buy is also a main consideration, cheaper developments can be found in more outlying areas but you still want to buy in a good area. This will play a major role in the future value of your home. On the other hand, take travelling cost into consideration, depending how far from your home you will be working. Security is also a very important consideration, find out what the crime statistics are in the area.

Consider the floor plan carefully, a good layout is imperative. This is the great benefit of building your own home, you can decide on what you want. With careful planning you can start with a one bedroom home and make provision for further extensions as your needs and your finances grow.

Before you sign any contract, do your homework properly. Visit as many show houses as you can to get ideas of what you really want. When you move into your brand new home enjoy the sense of achievement, you are now a home owner!

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