When you agree to buy an off-the-plan house, you’ll typically need to pay a deposit of at least 10% of its purchase price to secure your right to buy the home when it’s been built. How you finance this deposit will depend on whether it’s your first property, own any other property or are intending to buy as an investment. Once your home is built, you’ll pay the remainder of the purchase price and the home will become yours. Savvy can help you find the cheapest home loan interest rates in Australia by enabling you to compare loans and bringing you simple-to-understand loan comparison information.
Because the off-the-plan purchase process is in two stages (first payment of the deposit and, months later, the final payment), finance is slightly different for off-the-plan purchases compared to home loans for pre-existing property. Depending on your personal circumstances, your options to finance aside from providing the conventional 10% deposit out of your savings include:
- opting for a developer who will accept a 5% deposit if you don’t have the required savings for a 10% deposit. Whether your developer accepts this is entirely based on the funds they need to secure financing of their own to have the property built. You’re more likely to be approved for a sub-10% deposit if your developer is funding their own project, rather than seeking funding from an external source. You may also be required to pay Lenders Mortgage Insurance (LMI) as part of this, but this charge will only kick in after the property is built and the purchase and loan are settled.
- securing a deposit bond from your lender, followed by a variable home loan for the remaining cost of your home. A deposit bond is a promise to pay the deposit by the settlement date provided by your lender, which some (but not all) developers will accept rather than receiving a cash deposit. Your lender will arrange this with the developer as part of your successful home loan application.
- taking out a personal loan to pay the deposit and a standard home loan to subsequently pay the remaining purchase price. This option means while you’re waiting for your home to be built, you’ll have to support your personal loan repayments on top of your existing expenses.
- using your own savings to pay the deposit in cash and getting an investment property home loan to pay the remainder of the purchase price once the home is built. If you choose to take out a fixed-rate interest-only loan to buy your investment property, your loan repayments will be smaller until you’re able to sell or rent out your newly-built home. Use Savvy’s interest-only mortgage calculator to work out how much your interest-only mortgage repayments might be.
- using the existing equity in your home to refinance your home loan to take cash out, which you can use to pay the deposit on your off-the-plan investment property. When your home is complete, you could then apply for a standard additional home loan, or refinance again using your equity as security for an investment loan to pay the remainder owed on your new home.