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Building your own home can be one of life’s most rewarding milestones. Not only does a new build have the potential to save you money, but it also gives you the opportunity to design the home you’ve always wanted with all the latest fixtures and fittings.

You can also plan your finances with confidence, knowing your new home will need little maintenance or repair for years to come.

Here’s how financing a new build differs from financing the purchase of an established home.

How do construction loans work?

Construction loans differ in structure from regular mortgage loans. Generally, progressive payments are made as the builder requires them for each stage of the project – from slab, roof and lock-up to completion.

You only pay interest on the amount you’ve already paid, keeping your repayment costs down while you’re paying to live somewhere else. Just like a regular home loan, you must pay a deposit, and depending on the amount you borrow, lenders’ mortgage insurance may apply.

If you’ve already purchased the land, you will usually require a regular mortgage for the land and a construction loan for the build. The loans can be arranged separately, but are usually bundled together, particularly with a house and land package deal offered by a developer.

Products will vary between lenders, but most lenders will allow you to refinance an existing land loan when you apply for a construction loan. Once construction is completed, you can often nominate which home loan product the construction loan will revert to (i.e. a standard variable rate loan or a fixed interest rate loan).

What else do I need to consider?

There may be government incentives available to eligible first-home buyers who build their own home. Check your state/territory’s rules here.

Before you commence your build, you should be careful to establish exactly what is covered for the price. There could be other expenses that you need to budget for. We recommend you have some contingency funds set aside in case of unforeseen expenses that may not be covered by your construction loan.

There are some drawbacks when it comes to building a property yourself, compared to buying an existing house. The construction process takes time and is subject to many factors including inclement weather, and trade and material shortages.

It’s important to go into the project with realistic expectations and the understanding that you may have to wait a while before you can move in. If you’re building in a new housing estate, it may also take some time before features like schools and shopping amenities are completed.

Talk to us for more information

There are quite a few different construction loans on the market and each of them can be structured differently. We’re here to help you discover if building a new home is a viable option for you and help you obtain the right loan product/s for your individual needs.

Before you commence the process of building your own home, it’s wise to get advice. A short chat with us could help to take a lot of the hassle and uncertainty out of the process.

Are you looking at becoming a property investor? Purchasing an investment apartment is often a great place to start.

Apartments are traditionally cheaper than houses, and depending on where you look, there are usually more of them to choose from.

Here are a few of the benefits of buying an apartment:

• An apartment is usually far cheaper than a traditional house. This is because the cost of buying a house includes the land value, and therefore has a higher entry price than a small apartment.

• You will share the repair and maintenance costs for common areas with other unit owners, usually through a body corporate scheme. With a house, you shoulder all the costs.

• Council rates are also higher for houses, and they even require land taxes in some states. So, when you are paying smaller fees on a small investment apartment, the returns on your investment can potentially be higher.

Market conditions are also becoming more favourable for unit investors. Thanks to a slump in the number of new apartments under construction, an undersupply is forecast for at least the next few years on Australia’s east coast.

As the post-COVID property market begins to cool in some cities, units are likely to be more resilient compared to houses.

Apartment growth cycles have, historically, been less volatile and the rental return for units is currently rising faster than capital growth.

Now that you know the benefits of buying an investment apartment, here are our top tips on finding the one that is right for you.

Research the right location

Location is one of the most important factors to consider in choosing the right property for investment. Depending on your strategy, you would most likely want to invest in an apartment where demand is high.

Small space apartments are usually in-demand in locations where young professionals are. Look at the city centre, employment hubs, universities and popular nightlife destinations, as well as areas where these places can be accessed via public transportation.

Also consider what other properties are in the immediate area of the apartment, and of course, the level of security.

Analyse the market data

Data gathered is only as good as how it is used. When analysing the market data, your aim is to find a location where you can maximise the profit potential of your investment apartment.

You can count on us for guidance

We are dedicated to helping you make the right lending choices for your investment and assisting you every step of the way.

Depending on your current financial situation and investment strategy, a small apartment could be a good way to start, especially for a first-time investor.

If you’re looking to buy an investment apartment, we can line you up with the finance you need. Get in touch and we’ll get the ball rolling with pre-approval on your finance.

If you are buying your first home, getting your head around home loan terminology can be tricky.

Two acronyms you may come across are loan-to-value ratios (LVR) and debt-to-income ratios (DTI). Recently there have been important changes to DTI ratios that could affect your borrowing capacity.

Here, we’ll run through what these terms mean and how they could affect you as a borrower.

What is Loan-to-Value Ratio (LVR)?

In simple terms, the loan-to-value ratio (LVR) is the amount you’re borrowing, represented as a percentage of the property’s value (as assessed by the lender). The bigger your deposit, the lower the LVR.

Here’s an example. Let’s say you’re borrowing $450,000 and the cost of the property is $600,000.

Why is LVR important?

Lenders will take into consideration the LVR when assessing your loan application. Different lenders have different maximum LVR limits – generally they consider LVRs of above 80% to be riskier.

What if my LVR is more than 80%?

You may need to pay Lenders’ Mortgage Insurance (LMI) if your LVR is more than 80%. LMI can be paid upfront or added to your home loan.

The amount of LMI will depend on the lender, where you borrow and the size of your deposit.

Bottom line: if you save a bigger deposit, you can avoid paying LMI and put that cash to use on other costs associated with the property purchase.

What is Debt-to-Income Ratio (DTI)?

Debt-to-income ratio (DTI) is one of the ways lenders assess your ability to repay a loan.

It’s defined as the ratio of the credit limit of all debts held by the borrower, to the borrower’s gross income.

The credit limit of all debts includes:

• Mortgages
• Personal loans
• Credit cards
• Consumer finance
• Margin lending
• Buy now pay later debt (from September, 2022)
• Higher Education Loan Program (HELP) or Higher Education Contribution Scheme (HECS) debt (from September, 2022)
• Any other debts held by the borrower to any party.

Say you wanted to take out a mortgage of $400,000, and you and your partner had combined gross earnings of $160,000, plus a credit card with a monthly limit of $2,000.

Essentially your total debt would be 2.51 times your total income – which would be acceptable to most lenders.

Generally speaking, DTIs of over six times a borrower’s income are considered higher risk.

What were the recent changes to DTIs?

Against the backdrop of rising interest rates, earlier this year some of the major banks adjusted their DTI ratio limits to curb higher-risk lending .

Meanwhile, the Australian Prudential Regulation Authority (APRA) has been on a mission to rein in risky home loans to highly indebted customers for some time.

As part of APRA’s recent amendments to its prudential framework, lenders will have to include buy now pay later and higher education debts when reporting DTI ratios from September 2022.

What if I have a high DTI or LVR?

If you have a high DTI ratio, there may be ways we can help. We may be able to suggest different lenders or other options for you to work towards your home ownership goals.

Likewise, if your LVR is higher, we can run through how much LMI you may be up for or run through other scenarios where you don’t have to pay LMI.

Get in touch today!