Australian Home Loan Finance Guide & Advice

If you’ve come to this page, chances are you’re getting serious about buying a new build property. Regardless of whether this is your first-time purchasing, or if you’ve done it several times before - whether you're buying an apartment or townhouse off the plan, or a house and land package - there are some intricacies with financing new builds that are important to understand. Getting your financial ducks in a row early will take the pressure off the purchase process, so you know exactly what you can afford, and grab that property you love without looking back! You can also learn more about the four biggest financial benefits of buying off the plan here.

If you’re researching your next property move and any of these scenarios are playing out in your mind, then it sounds like finding the right community to buy in is important to you. With so many housing options today, finding the right community to suit your lifestyle can be difficult.

In this page we cover:

How much can you borrow?
Dos and don’ts when it comes to saving
Organising your property deposit
Installments and repayments
What types of home loans are available?
Leveraging equity
Understanding government grants
Stamp duty explained
Partnering with Cedar Woods

How much can you borrow?

When it comes to buying or building a new home, it’s easy to become overwhelmed with the choice and options available. Before you start looking at land estates or home designs, you need to set financial goals – and stick to them. It’s important to choose a home that fits within your budget and suits your lifestyle.

Before you start looking, assess your current financial position, taking into consideration your salary, current loan repayments (including credit cards) and day-to-day expenses. This will determine what your minimum monthly repayments are and more importantly what your borrowing power could be. Most financial institutions have a mortgage calculator online that can assist with this process.

Check out our handy checklist of Do’s and Don’ts when it comes to saving below to help keep you on track!

Dos and don’ts when it comes to saving for a new home

Getting a handle on your finances should be the first port of call for any property purchase, and new builds are no different. Now that you’ve got a solid understanding of the ins and outs, we recommend getting in touch with a financial professional as soon as possible to discuss your individual circumstances. With the property market constantly on the move, by having your finances sorted upfront, you’ll be prepared to pounce when the time is right. If you're building a new home, you might want to learn more about these four essential finance steps.

In the meantime, here’s a handy checklist of do’s and don’ts to help keep you on track with your savings:

Do’s

DO keep saving.
DO clear any bad debt you have.
DO pay your bills on time.
DO keep your account/s in credit.
DO set out a budget.
DO set aside some money for emergencies.

Don’ts

DON’T change your current circumstances, if possible.
DON’T purchase any big-ticket items, like a car or boat.
DON’T change your job or move house.
DON’T touch your deposit money.
DON’T borrow any money (credit cards, loans, store cards, overdraft facilities, etc).
DON’T increase your borrowing with any bank or financial institution.
DON’T use your bank account erratically.
DON’T incur any bad debt.
DON’T overdraw on your bank account/s.
DON’T pay your bills late.

Organising your new property deposits

When buying a new build home from a developer there are two types of deposits you need to organise: your mortgage deposit and your deposit to secure the property. They are two very different things! Check out this blog to find out everything you need to know about financing a new build.

Mortgage deposit

Depending on your salary, lending history and other criteria, most banks or home lenders will ask for a deposit of between 5–20% of the property’s value. In most cases deposits of less than 20% will require you to take out lenders mortgage insurance (LMI), so make sure you factor this cost in before making your decision. Also factor in Stamp Duty (if it applies to you), government charges, solicitor fees and costs of inspections.

Deposit to secure a property:

To secure the off the plan property or land (in a house and land scenario) from a developer, a deposit needs to be paid directly to them. In some instances, land deposits can be as low as $2k, whereas on average, townhouses and apartments bought off the plan usually require a deposit of around 10% but this can vary greatly. In most cases this developer deposit forms part of your payment eg. At settlement you now owe the purchase price less deposit already paid.

Chatting to a lender or mortgage broker is a must. They’ll step you through the entire process, assess your borrowing capacity and will ultimately provide you with pre-approved finance once you’ve got your deposits sorted.

{Total purchase price (including any relevant fees) – the amount you can borrow = deposit you need to save}

Instalments and repayments

One of the biggest advantages of buying a new home off the plan is that you only settle on the property once it is complete. This means that typically you pay a deposit to the developer to secure the property and then have further time to save for the home loan deposit, fees or just give you a leg up on the repayments. This is attractive to many buyers, but particularly first home buyers (more time to save!) and property investors (delay finance costs - and often makes the number crunching easier for final financing particularly if the property has increased in value between purchase and settlement date).

House and land packages are a little different when it comes to repayments. Because you need to settle on the land before building, you may commence loan repayments on the land amount from settlement. The amount and loan set up will depend on the lender however in most cases you will pay some repayments through the build process with the full loan coming into effect once your lender makes the final payment to your builder. Make sure to clarify your individual loan commitments with your finance broker or provider to ensure you understand the process.

What types of home loans are available?

Once you get into the nitty-gritty of locking in your mortgage, it’s essential to understand what loans are available. Your lender or a mortgage broker will help you decide what type of loan is best for your individual circumstances.

Here we provide a brief description of the 3 most common types of loan structures:

Variable rate home loans:

As the name suggests, the interest rate on these loans vary with market changes. This means your repayments will fluctuate throughout the loan period. A key benefit of variable loans is that if you’re able to make extra repayments, you won’t be charged additional fees.

Fixed-rate home loans:

These loans are locked in at a predetermined interest rate for a set period (usually between 1-5 years). A benefit of this type of loan is that it allows you to budget for your repayments accurately, but you can end up paying more if interest rates drop. You will be limited in making extra repayments and this may come with additional fees.

Split home loans:

Split home loans are part fixed and part variable. It’s up to you how you decide to split your loan between the two portions. Your lender or a mortgage broker will help you decide what type of loan is best for your individual circumstances.

Leveraging equity

If you already own a property and have a decent amount of equity tied up in it (either through capital gains or by paying down your mortgage), it might be possible to use this as a deposit when purchasing an investment property (rather than using savings in the bank or other investments). Speak to your lender about how you can access any current equity.

{Equity = current value of property – amount you owe on it}

For seasoned property investors, this equation naturally gets more complex depending on the number of properties already owned and what economic, regulatory and political factors are at play. However, it’s safe to say that new builds are an attractive option for property investors for the following reasons.

Save on maintenance –as everything is brand new and covered by warranties, it's unlikely that you’ll have to budget for costly repairs on your investment property.
Appealing to tenants – depending on location, you may be able to set higher rental fees for a new home, particularly compared to well worn rentals in neighbouring areas.
It’s rental-ready – new builds are constructed to current building code requirements, meaning things like insulation and ventilation standards are adhered to. Make sure you’re aware of the minimum rental standards that apply in your state.
Tax benefits – the ability to claim depreciation on the cost of a new build (and any fittings) has great appeal for investors. It’s best to speak to a property accountant about the intricacies of depreciation against new builds.

Off the plan specific benefits:

Once the deposit is paid, there are no further payments until the property is complete and settlement has gone through
If you are purchasing in a rising market your property can be worth more by settlement day

House and land specific benefits:

As the home doesn’t exist yet, stamp duty is only paid on the land component. Given stamp duty ranges between 3-6% of the purchase price, this can be a large saving. Find out more about Stamp duty here.

Understanding government grants - first home buyers, this is for you!

If you’re getting into your first home, there are plenty of government grants, schemes, and benefits you can access to help you on your way. Here, we’ve outlined the main three types of grants available in most States, but please refer to the government resources relevant to your State available online for more information:

First Home Owner Grant: Introduced to offset the effect of GST on homeownership, the First Home Owner Grant provides eligible Australians with a one-off payment towards the purchase or build of a residential property to live in. While the grant varies in each state and territory, it exclusively applies to new homes in most instances. For state-specific advice, visit www.firsthome.gov.au.
First Home Super Saver Scheme: Put your super to work earlier by investing your super savings into your first home. This scheme allows you to save while benefiting from the concessional tax treatment that applies to superannuation. Only voluntary contributions can be accessed as part of the First Home Super Saver Scheme. Find out here if you’re eligible and how to apply.

First Home Guarantee: Bypass the 20% deposit requirements and get into your first home with as little as a 5% deposit – minus any Lenders Mortgage Insurance requirements. Under the scheme, the Australian Government partially guarantees thousands of low-deposit loans each financial year to get eligible low and middle-income earners into homes. Find out more at First Home Guarantee.

First Home Buyer Stamp Duty Exemption: The governments of Western Australia, Victoria and Queensland offer a full stamp duty exemption or concession if you're a first-time buyer and are purchasing a home within certain eligible price brackets. Please refer to State-specific government resources for more information.

Family Home Guarantee: If you’re a single parent, you could be eligible for the Family Home Guarantee. This supports parents with at least one dependent child to build a new home or buy an existing home with a deposit of as little as a 2% deposit - regardless of whether it’s a first home.

Stamp duty explained

Whether you’re buying a new build off the plan, buying a house and land package - or even if you’re buying an existing home - stamp duty on property purchases is unavoidable. And if you’re not prepared for it, it can come as a shock on top of your purchase price.

Here’s what you need to know about stamp duty on new builds:

What is stamp duty on property? It’s a government tax (also known as transfer duty) charged on any property purchases. Put simply, it’s a tax you pay to have a property transferred into your name. In Australia, every state and territory has different stamp duty rates and rules, but the cost typically ranges between 3-6% of the property’s value.
Stamp duty exemptions. In some states like Victoria and Western Australia, first home buyers benefit from exemptions from paying stamp duty. In Queensland, first home buyers receive a reduced rate of stamp duty, and in NT and ACT, pensioners also benefit from discounted stamp duty. Check whether any exemptions apply in your State.
Stamp duty benefits for new house and land packages: When you buy a house and land package, you only pay stamp duty on the land. You don’t pay stamp duty on the house as there is technically no house transfer taking place.
Stamp duty for new townhouses and apartments: When buying off the plan or built townhouses and apartments, normal stamp duties are applicable depending on any exemptions that apply to you and/or your State.
Stamp duty for investors. Given the Australian Tax Office classifies it as a capital expense, stamp duty is not tax-deductible. However, this cost can be accounted for against your capital gains tax liability when you sell the investment property.

What Next?

We understand financing your first property might be confusing, which is why we’ve summarised everything you need to know, as well as the grants and government schemes available to you in one simple information guide:

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Partnering with Cedar Woods

With over 30 years of experience, by partnering with Cedar Woods for your new build, you’ll have all the assurances that come with a proven track record. Offering a diverse range of housing across a broad range of budgets, there’s something to suit every buyer.

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How to prepare your finances for purchasing a new build home.

How much can you borrow?

Dos and don’ts when it comes to saving for a new home