Many young families and professionals dream of owning their own home, but many buyers find that the actual process can be confusing, convoluted and complex. This road to buying land can be an exciting process, but it's important to do your research first and ensure you understand the steps involved.
In this article, we will walk you through each step of the process so that you can feel confident about purchasing the best property. Buying a house is not cheap, and there are so many different options and forms of real estate available, which can make it difficult to decide which path is the right one for you.
A house and land package sounds obvious, but there are key considerations to remember before you sign on the dotted line.
What is a House and Land Package?
A house and land package is a popular home loan option that involves the combined purchase of a block of land and property. There are two kinds of house and land packages: standard and turnkey. Each can have separate contracts or be bundled together for buyers’ convenience.
What Are the Different Packages?
There are two main types of house and land packages:
A standard package includes the land, and you later build a house on it with a construction loan after settlement. This is generally seen as the cheaper option, however, this is not technically true. It is possible for site costs and other hidden fees to pile up during the construction process, which can lead to more expenses than you bargained for.
- Turnkey package
The turnkey package involves buying a new home already on the developer's land. This means the house is already built, and you can move into it immediately, hence the “turn-key” title. This is generally considered safer than the standard package because it eliminates the possibility of builders increasing the budget during construction due to initial underquoting of their work.
House and land packages include many extras such as permits, associated site costs, landscaping, and features such as driveways, fencing, fitted-out kitchens, flooring, lighting, and even clothes lines, depending on the home design.
Who is Suitable for a House and Land Package?
A house and land package suit a wide range of people from different backgrounds, ages, and socioeconomic statuses. This package is particularly appealing to those who want a brand new house. This can include anyone from first home buyers with a smaller budget to experienced property investors looking to expand their portfolios. You will also find older demographics moving into these areas.
Pros and Cons of House and Land Packages
A house and land package is a good housing option for many people. However, like any deal, it has positives and negatives. This means you need to know the pros and cons to determine which of them apply to you and affect you. Accordingly, you can make a smart and informed decision about your financial future.
- Simplifies the experience: Buying a house can be a big deal, and when you try to research on the internet, talk to people, or ask around, you can get overwhelmed by the amount of information available. This is even more true when much of the information is contradictory. With a house and loan package, this process can be simplified, and you can do it all in one go.
- Price: Depending on your package, house and land packages can be an amazing way to break into the market easily. This is partly because you will be saving on stamp duty if you go with the standard house and land package (only buy stamp duty on the house), and may have waived fees and be able to claim assets such as the cost of fixtures and construction.
- Maintenance: Land packages offer the promise of a dream home with fewer maintenance issues. All houses need maintenance, but a brand new house means that it will be in great physical condition and will not have any pre-existing problems or defects that may cost you a lot of money in the long run.
- Limited inclusions: Knowing what is included in your package and what is not is essential. If you have a standard package and are planning to build, you and the builders will need to be on the same page regarding what is included in your future house, how much it will cost, and how long it will take. It is not uncommon for new buyers to spend more money than they wanted and realise that something they required was not included in the initial cost.
- Time:If you go with the traditional land and home option, creating, moving into, and living in your home will take much longer than other real estate options. This is because the house is yet to be built (at least this is so in a standard package). However, this does not have to be a con if you are organised and know exactly when you want to move in and how much you can afford for rent while the construction phase is active.
- Re-sale: If you are buying in a new estate, the property’s value may rise slower than a home in an established area or suburb. This is nothing to worry about in the long term, but if you are looking to flip short term to sell, you will see a much lower yield. Essentially, house and land packages are for the long haul, either to live in or to rent out.
- Builder competence:When it comes to outsourcing any construction job, it is up to you to ensure that you have enlisted the right company for the job. Make sure you check the building company’s credentials alongside their previous work and talk to owners of houses they've worked on before signing anything or going ahead. It would help if you determined that they are trustworthy and competent, providing you with the best deal possible. Make sure you check that they are fully licensed, have insurance, have inspected and accepted the prospective lot and that you have seen their recent projects.
How to Buy a House and Land Package
A house and land package is not so different to a regular mortgage loan, except you will acquire two loans, one for the land component and one for the house or construction component. As mentioned, it is possible to bundle these together for simplicity’s sake. House and land packages work the same way as a regular mortgage, with an upfront deposit, borrowing from a credit provider, and an agreement to pay interest on the loan.
1. Find a Developer
The first step is to find a reputable builder. You can ask friends and family for recommendations or search online for reviews on property developers. Once you've found a few builders you're interested in, it's time to start shopping around for pricing that suits your financial situation.
Be sure to get quotes from several different builders and compare the prices carefully before signing a building contract. It's also important to ask about any hidden costs or fees associated with the purchase.
2. Shop Around
After finding a builder you're comfortable with, it's time to start looking at properties. Take your time and look at several options before making a final decision.
Visiting display homes is a great way to find a design, style and area you like or at least elements you might want to apply to your own.
Finding a property or developer that meets your needs and budget is important. This includes weighing up your package options, whether you are interested in fixed price packages with no surprise additional costs or a separate contract. Once you've found the land deal you want, it's time to make an offer on your dream home.
3. Seek Pre-Approval
Once you've found a house and land package you like, it's time to start the process of seeking pre-approval. This means getting approved for a loan by a lender. You'll need to provide some financial information, such as your income and debts, and the lender will use this to determine how much they're willing to lend you.
After you've been pre-approved for a loan, you can start looking into financing and options, like a home owner grant. Several programs available can help you with the cost of buying a house and land package. You may be eligible for a first home buyer grant, or you may qualify for a low-interest loan. Be sure to explore all your options to find the best financing solution for your needs.
Construction on your house and land package will likely take several months or even years. During this time, the developer will begin site preparation. This means getting all the necessary permits and building the house. Once construction is complete, it's time for final settlement. This is when you'll pay the remaining balance on your loan and officially become the owner of your new home!
The potential benefit of house and land packages is that they can be great value for potential homeowners bundled in one package for a combined price.
Deposit Required for House and Land Package
A house and land package will generally require a minimum deposit of about 5% to 10% of the overall property price value, depending on the land size. However, if you're borrowing 80% or more, you may also have to pay Lenders Mortgage Insurance (LMI), which is a one-time, non-refundable premium that is implemented to protect the bank against borrower risk.
Therefore, if you want to avoid paying LMI, we recommend paying a 20% deposit on your house and land package.
Financing works by raising money and additional funding by borrowing an agreed-upon loan from a lender. A home and land package is quite simple, requiring only a few steps to start:
- The first step is to buy the land (considered a standard transaction with a regular mortgage).
- The second step is to acquire a construction loan which differs in that you are required to agree upon an amount of money to be paid at particular stages of your house's construction. This is ideal because it means you are only paying interest on the money you are using at that stage, rather than the whole house.
Although you will require two separate loans for the land and the house, these loans are often bundled together for simplicity.
There are also different federal government grants available to first-time homeowners, buyers and builders. It is important to take advantage of the grants the State and Territory Governments offer. Some of these grants include:
- HomeBuilder grant ($15,000-$25,000): isn't available for legible owner-occupiers to build a new home, renovate an existing home or buy a brand new home from a plan.
- First Home Buyers Assistance Scheme: offers a full or partial exemption on stamp duty (now known as transfer duty), as long as it is your first home in Australia and the property is no higher than $1,000,000. First home owners may also be eligible for the first home loan deposit scheme if it is a newly constructed, off the plan or part of a house and land package.
- First Home Owner Grant ($10,000): offers a lump sum towards the purchase price of a new property as long as it is your first, is new (never lived in before) and is worth no more than $750,000.
- New Home Grant ($5000): is available for new homes that have not been occupied, were bought off the plan and will be built on vacant land. An important note is that construction must start within 26 weeks of the land purchase.
If you're a first home buyer in Australia, check out our grant breakdown for the following States:
Things to Consider When Buying a House and Land Package
Hire a company you can trust. Your home is a huge investment and you should be confident that your builder is up to the task of giving you everything you want for the price that fits your financial situation. Check their previous work, ask around about them, check testimonials and make sure their brand is spotless.
Extras and Inclusivity
Make sure that you know what fees are included in the package such as site costs, connections, stamp duty and any other hidden extra costs. Check the reviews of your builder or mortgage broker before you sign anything, to ensure they are transparent with their costs and that they are high quality. It is also essential that you know what you want to include in the design of your house and how flexible the plans are.
You may have specific ideas about what you want in terms of flooring, finishes and landscaping, and this could either be impossible for the plan or could result in extra fees that you have not accounted for. Know what you want your house to look and feel like, and budget for that without deviation.
Whether it is an established home or land to be built upon, you must consider where the property is and how viable and lucrative it will be going forward. For instance, take into account whether there is public transport, shopping centres, hospitals, doctors and schools, other estates, or if there are plans to build around that area. All of this will be crucial in determining the value of your property in the future.
Should First Home Buyers Invest in House and Land Packages?
Yes, house and land loans suit any kind of prospective home buyer from many different kinds of backgrounds, age groups and financial situations. However, like any house purchase, it is imperative that first home buyers extensively research the market, set a reasonable budget and thresholds, and seek legal and financial advice if they are unsure at any point. When buying your first house, the more you know before you sign on the dotted line, the better.
Is House and Land Package Cheaper?
A house and land package is generally a cheaper option than an established home. However, this does not mean that it will always be cheaper overall than buying an existing property. This really depends on what option you go with (standard or turn-key), what extras you want, as well as the usual variables which determine prices such as location, modifications, extra fees and services, interest rates and overall property market performance.
What is Included in a House and Land Package?
As the name suggests, this package generally has two contracts: the land titles and either a complete house in housing estates or the future construction of a house moving forward. Every first home buyer must be sure to know what is included so they aren't required to pay additional funds for unexpected costs.
Is Stamp Duty Payable on House and Land Packages?
One of the biggest benefits of buying a vacant block of land and acquiring construction loans is that you only pay stamp duty on the value of the land because the home is not yet built.