February 03, 2015
Yew Kong Lye
Let me start by saying that if you don’t like to make decisions don’t build. When you build a home, there are hundreds of decisions to be made from choosing the colours of the walls to deciding the tiles to go on your floors. The decisions will not only take up your time but, will almost send you to therapy.
That is not the worst. There will inevitably be one occasion during the building process where there’ll be a divorce threatening situation. It will arise from an acute difference of opinion where neither will give way for something they hold dear to their hearts, albeit, they’ll look back in years to come to realise how trivial the issue was. That’s what building a home will turn people into-emotional, unreasonable, irrational, trivial, argumentative, etc., etc.
Having got that out of the way, there are merits to building your own home.
- You get exactly what you want. The spaces are designed for your specific needs and you’ll enjoy the home more.
- In Victoria, you get the full First Home Owner’s Grant from both the State and Federal Governments.
- It’s a personal statement to reflect your beliefs and taste.
- It’s new and it’s a strong preference for some.
The Most Important Things You Need To Know When Building A Home.
The Construction Home Loan
It is very often split into 2, the land loan and the construction loan. The reason for that is that the land will settle first while the design and the various processes of a construction contract with a builder is being sorted out. If the construction is ready to go no more than a month after the land settles, the land and construction loans can be combined into one.
The important thing to note here is that it will take 9 to 12 months to complete the build. Meanwhile, you’ll be servicing the land loan on top of your home loan if you have not sold your current home. If you’re a first home buyer, you’ll be paying rent as well as servicing your land loan.
Also, the construction loan gets drawn down in 5 phases according to the build process, namely laying the slab, putting up of the frame, when the home is at a lock up stage, the completion of the internal fixing and the hand over stage. In other words, your loan gets bigger and bigger as each stage is completed.
Here, you need to work out your affordability during the construction phase. You have the added commitment of servicing the land loan and the progressively bigger and bigger home loan as you go through the construction stages. Will your cash flow allow this added strain?
The Building Process
Here I will list the various stages and the most important thing to look out for under each stage:
Securing the Land
If you are a first home buyer with limited resources, you can only consider building in the outer suburbs where land is cheaper. If you are a second home owner, whether there’s enough equity in your current home to allow you to build in the suburb of your choice. In the suburb of your choice, is there an availability of vacant land or do you need to buy an existing derelict property and demolish? If there’s no availability, are you prepared to move further out? Is your construction loan organised through your mortgage broker.
The Building Process
It can be broken down as follows:
- Design. Either through an architect/designer or tweaking a design from a display home
- Deciding on a design and confirming on the specifications.
- Sending design out to tender and deciding on a builder.
- Signing of a fixed price contract with the builder of your choice. The banks will allow no room for variations. So, all you want in your home needs to be included in the fixed price contract and the loan application will be assessed on that basis.
- Submitting the plans to the council for approval/Notice for objection posted
- Council issues building permit.
- First stage of construction. Site is cleared and prepared for laying of slab or footings.
- Slab or footings is laid. Builder invoices you for first progress payment.
- Framing stage. The frame and roof trusses are erected. Builder invoices you for second progress payment.
- Lock up stage. After the frame and roof trusses, the brick work, roofing and windows go in to make the building water tight. Builder invoices you for third progress payment on completion of this stage
- Fixing stage. This stage involves basically all the internal, electrical wiring; plumbing; tiling and other floor covering; kitchen; installation of prime cost item and painting. Builder invoices you for fourth progress payment on completion of this stage
- Practical completion. This is the point in time when an inspection is conducted when builder is almost finished. You will walk through the development with the site manager and point out any items that still need attention. By this time it should only be touch ups and minor items requiring installation. Some people engage the expertise of a building inspector to go through the build to ensure that the construction was to plan and specification. It can be money well spend they can pick up on things that you and I can’t
- Handover. This is when you are happy the construction has been completed to your satisfaction and to the plans and after paying the builder’s fifth and final invoice, keys will be handed over to you.
To Build Or Not To Build?
This is a six million question that a lot of home owners have wrestle with in the past and for some very good reasons. In my opinion, if you are upgrading, it’s worth considering because it can be an opportunity to build your dream home no matter how daunting it can be. The upside can be hugely rewarding.
If you are a first home owner, though there’s stamp duty savings (in Victoria) and qualifying for the full First Home Owner Grant, choose to build only after carefully weighing the pros and cons and being aware of the following considerations:
- You shouldn’t try to build your dream home with the first home
- You will outgrow the space after 5 years because your needs change over time
- There’s a very likelihood that you’ll move to your second home after 5 years because of change of circumstances and needs.
- Your aim as a first home owner should be to locate your home well to give it the best chance of capital growth so that you can use it as a stepping stone to your dream home.
- If you build, outer suburbs are your only options and they will grow slower.
To build or to build? To have a second opinion on a though question and more information call 0413 871 888. Be sure to share our blog on Facebook and let others join the conversation.