From contract to deed.
Transition from agreement to ownership.
The very first step to take in this process is acquiring the land on which to build. Before you can officially own a piece of land, it will need to be registered with the state government Land Titles Office. The developer will divide a large section of land, like an estate, into smaller blocks. They’ll submit this subdivision plan to the state government which will then issue a new land title for each smaller block. At this point, the land is officially registered. Once registered, the Land Titles Office of the state will officially recognise that the land exists and the buyers can start taking ownership of the smaller blocks of land.
Once the land has been registered, you’re able to book a settlement date, provided you have received your finance approval. In the rare event that the land has not yet been registered when you acquire it, you will need to wait for the registration to be finalised before booking your settlement date. It usually takes about two weeks from registration to settlement in this case. On your settlement day, you will officially own that block of land. Your conveyancer will register the change of ownership with the Land Titles Office and your mortgage will begin. Your mortgage will be the cost of the land minus the deposit you’ve put towards the acquisition of the property.
Remember that if you’re purchasing a house and land package, the title changes hands on the day the land settles. This means you will only pay stamp duty on the land price and not the whole transaction. It’s an easy way to save a significant amount of money and more often than not, it’s more than $10,000. If you’re buying an existing home or off the plan it will be calculated as a percentage of the full purchase price. This is important to keep in mind when choosing your investment property.
Seal of approval👍Understanding building approvals
Once you own the land and you can provide the proof of ownership to your builder, they will apply for the relevant building permits on your behalf. While this is a fairly straightforward process, it can take some time depending on your local council office. It could take one week or it could take six weeks. In some cases, it may require some back and forth to ensure all aspects of the building and design comply with local regulations. There’s no need to worry about getting approval, you will! It might just take some time.
With your loan approval paperwork, you will receive six authorisation cover sheets for each stage of the build. When your builder issues you with an invoice at each stage, you’ll simply attach the authorisation cover sheet and send it off to your lender to pay. Once an invoice is settled, the builder will commence with the next stage.
The cost of the average build is broken up into various percentages for each stage as depicted below:
The timeline for building a house with loan repayments
Unlocking the funds. Ins and outs of construction loans
Construction loans work differently from your regular home loans. As mentioned above, you will get a new invoice for each stage of the build and your lender will pay the builder according to these stages. Once each stage of the build is completed, the lender will send a valuer to check that the work has been completed before releasing the payment. This process ensures that the builders are only paid for the work that has already been completed.
During the build process, you will have interest-only repayments. This ensures that your repayments are kept as low as possible during construction. Once construction is complete, you’ll revert to a standard home loan. This means that if the first stage costs $50,000, you’ll only be charged interest on that $50,000 until the next stage is completed. Once the next stage has been completed and the lender pays the next $50,000 for example, you will be charged interest on the larger amount of $100,000. Your interest charges will continue to grow as each stage of the build is completed.
While construction loans are predominantly used for building a house from scratch, they can also be used for big structural renovation projects too.
Check back soon for the next blog post when I discuss stage 1 of building a house: The Build Deposit.
~Daimien Patterson
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