With house and land packages there’s typically three options.
Option 1.
Where you pay for the entire house and land contract when the house is completed and you’re ready to move in.
a) Most banks will not issue formal approval for a house and land package until the house is built and they can send a valuer out. Typically in these cases we recommend you put in a finance clause in two parts – conditional approval (subject to valuation within 28 days) and then formal approval within 14 days of the property being suitable for the bank to value it and occupancy permits received (against your solicitor or conveyancer will help you word this). Opting for this finance clause will give you maximum choice of enders to suit your situation and also allowing us to be conscious of interest rates as we look for the best option for you.
b) If the developer / seller will not allow a finance clause as above there are very limited lenders who will issue formal approval prior to the home being built. We can discuss these options with you however to all lenders suit everyone’s situations and interest rates may be higher than other options.
The simplest way to go forward is to figure out which of the two options and then a) or b) is most likely to be the way forward for your property by chatting with the agent / developer and let your broker know so they can map out options for you.
Option 2.
Where you pay for the land up front and then engage the builder to build you a house paying in progress payments for the build to the builder as per a normal building contract (see: https://www.uploans.com.au/stage1). You get one normal residential sale contract for the land and a second for the build (typically).
In this case there are two ways to structure your finance clause
a) if the title to the land isn’t issued as yet, then your finance clause drafted up by your solicitor conveyancer should state that finance is due within 21 days of issue of title and preferably be for the entire house and land.
b) if the title to the land is already issued, then we recommend your finance clause has at least 21 days from when we get the land contract AND your building contract – if we cannot get these both up front a longer finance time frame should be required (see: https://www.uploans.com.au/stage4).
Option 3.
This is a slight take on Option 2 and it’s what banks like to call a Split Contract. That’s where the owner of the block of land being sold is actually the builder – typically the builder then puts a clause in the land contract to state that you must build through them. Most banks are not keen on these types of contracts so they need to go to a specific lender who has an appetite for them. If this is the case it’s really important you let your broker know very early on.
For Off the Plan purchases it’s much the same as the above options however you may find that there is some pressure not to have a finance clause due to the length of time prior to your build being read. The main risks if you do this are that:
– your circumstances will change (job, children, savings etc) and you won’t be able to secure finance when the time comes
– valuation risk that the building does not value up when the time comes for it to be completed.
We would always recommend you seek legal advice prior to putting in any offer without a finance time frame.
Where possible the same option as option 1 above gives you the best possible form of protection.