How do house and land packages work?
About the Series
In the third in our series on buying different types of property, we look at house and land packages.
If your dream is to buy a brand new home you might well find yourself looking at house and land packages as an option.
What is a house and land package?
Most new home construction these days are done by property developers who acquire land when it's released by the government. The developers lay down infrastructure (roads, utilities, water and sewage), then either:
- Build homes and sell them as a complete house and land deal
- Offer a number of standard or customisable home designs, so that you can choose the block of land you want and the features you’d like in your new home.
A potential benefit of buying your new home this way is that you can ensure you get a property that suits your needs. Buying a new home can also help you plan your finances with confidence, with low maintenance costs and no major repair expenses in the foreseeable future.
Another benefit is that environmentally friendly materials and features are often part of the package, as sustainability has become a benchmark in the industry.
How do you find a house and land package?
House and land packages are often tailored to appeal to a specific group of buyers. You might find the one you want in a golfing estate, retirement village or even an eco-village. Then there are the new sub-divisions, with opportunities for investors or first home buyers.
Unless you are already aware of a new estate being built in your neighbourhood, you can find them advertised on major multi-listing websites or by going directly to the developers themselves.
If possible, check out other estates that the developer has been involved in, walk around the streets and talk with homeowners to get a feel for the reliability and quality of the development you are interested in.
Is buying a house and land package purchase any different to buying a house?
Financing for a house and land package usually consists of two steps: buying the land then building the house. The loans can be arranged separately, but are usually bundled together.
Buying the land is a standard real estate transaction with a regular mortgage. The second step requires a construction loan where you 'draw down' an agreed amount to pay for each stage as your home is built. That way, you only pay interest on the money you’re using at each stage.
What are the other considerations?
Ask what is included in the build, as there could be other considerations that you need to budget for. Some builders include fencing, driveways, landscaping, garaging, carpets and clotheslines in the listed price, but others do not.
It's a good idea to budget conservatively. If there are shortfalls in the valuation of the property, you may need additional funds to cover the cost of the construction or land purchase. You may be better off if you plan to leave a bit of a buffer in your budget to cover any unexpected costs.
Lenders might also require that you pay the initial invoices and only start releasing funds from the construction loan when there's evidence that you’ve used all your deposit. This is to ensure that there are sufficient funds to complete the build.
Are there any grants for new house and land packages?
Many states offer grants for buying or building a new home as well as tax or stamp duty concessions, particularly for first home owners. See your state government’s website for details before finalising your budget.
Once you've decided where and how your dream home will be built, keep a close eye on it throughout construction. That way you'll know about changes as they occur and be prepared for the next steps.
Thinking of buying a house and land package? Speak to one of our lending specialists today.
This article is intended to provide general information of an educational nature only. It does not have regard to the financial situation or needs of any reader and must not be relied upon as financial product advice. Commonwealth Bank of Australia ABN 48 123 123 124.