There are lots of reasons why you might want a new build home. You may have a dream home in mind and want to have it built to fit your exact specifications. You might have the perfect spot of land, and just need to put a house on it. You might just want a brand new place to live.

But what happens when it comes to the home loan?

There are a few key things to know if you’re borrowing for a new build.

Differences between an existing home and a new build

One of the biggest ways that a home loan for a new build is different to that for an existing property is that, in many build contracts, you pay for your home in stages.

Unlike an existing home or even a turnkey project (where the home is completed before you purchase it), if you’re in a build contract, you will generally be required to make a series of staggered payments.

You might pay a percentage when you sign the contract, and then further amounts at key stages along the way. That might be at points such as when site works are finished, when the framing Is up, the internal lining is completed and the roof is on, the fit out and finish stage, and a final payment when the code of compliance certificate is issued.

The money usually goes directly from the lender to the builder, and you only have to pay interest on the amount you’ve borrowed, not the full amount you will eventually drawdown.

Once your loan is approved, your lender will generally give you a set amount of time to make the first drawdown.

Often with a construction loan for a new-build, you only pay interest during the build and start repaying the principal, as well as the interest, once the property is complete.

Your lender will generally approve you for a certain amount but may build a degree of flexibility into that, to cater for any cost overruns.

What will lenders require?

You’ll usually apply for a construction loan in much the same way that you apply for a loan for any other property.

You’ll need to provide things like your proof of income and deposit, and your identification. However, the lender will also want to see a sale and purchase agreement for the land you’re building on, if you don’t already own it, a valuer’s report on what the property might be worth once it is finished (based on the plans), your build contract, details of your builder and their risk insurance, and any applicable consents.

Things to know

There are a few things to keep in mind.

Loan to value rules: LVR rules don’t apply to new builds, so you may be able to access a home loan with a smaller deposit than otherwise. We can talk to you about your options.

Partial builds can be more complex: If you don’t have one company managing your whole build, and instead have different contracts with different suppliers, this is a more complex project and might require you to have a higher deposit.

Paperwork: You’ll need to be prepared to provide more paperwork as you go through the loan process, including things like invoices from your builder and details of council inspections and sign-offs.

Pre-approval: You may be able to get a conditional pre-approval to give you an idea of what you can afford in a new build. This could help your early discussions with your proposed builder as you consider your options.

Interest rates: You can sometimes fix your interest rate on the drawdown portion of your loan while the build is in process.

Wondering about your options?

When you are thinking about buying a new build, it’s important to get a home loan that’s a good fit for you. Your SHARE or Newpark Home Loans adviser can help you look at the options available and determine which lender and home loan might suit your individual circumstances and goals.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.