Planning on Buying a Spec Home? Get your Home Loan Prep in Order!
When buying a home, particularly in a competitive environment such as making an offer on a ready-built spec home, it's extremely important to have your financial prep work done and dusted.
We spoke to trusted local Mortgage Broker Deb Box about how to best prepare to make an offer on a new home.
Here are her tips to ensuring the process goes as smoothly as possible for you and your family.
Spec Home Finance Prep - Q&A
Q - What is a 'spec home'?
A - A spec home is a new home built by a registered builder which is fully complete an ready to move into.
Q - What are the benefits of buying a spec home?
A - A spec home, as opposed to an existing property, is brand new and has not been lived in before therefore it usually will have modern fittings & fixtures that are unused and will likely be under warranty at purchase. A spec home will usually settle and be ready for you to move in within 30 days.
Building a new home takes at least 4-6 months from Council Approval through to completion, while with a spec home all of the work is done and you simply move in to your finished home.
Financially - when you build a home you will need to contribute toward the new home mortgage throughout the build as well as cover your current accommodation eg. rental repayments. That is not the case when purchasing a ready-built house because you will be able to move in upon settlement.
If you qualify for the First Home Owners Grant then $15,000 may be able to go towards your deposit.
Q - What should a buyer do to prepare to purchase a spec home?
A - Do your homework. Talk to your mortgage broker or bank and know the following:
- Your borrowing capacity.
- The cost involved in purchasing a home ie. deposit, government and legal fees, mortgage insurance etc.
- How much money you will need to put aside for Rates and Insurance on your new home.
- Understand the process of purchasing a property from finance approval to settlement.
Q - Are there any traps/downfalls to be wary of?
A - Trust your Bank/Mortgage Broker to give you a good understanding on what is happening with the interest rates, make sure you are selecting a home loan that is not going to restrict you in paying extra or having certainty with home loan repayments.
Make sure you do your research on the builder you are purchasing the home from and understand the inclusions, building quality and prior performance of the building company. Ensure it is a registered company with the Queensland Building & Construction Commission (QBCC).
OTHER FREQUENTLY ASKED QUESTIONS
Can you chose how often you pay your loan?
Yes - you can chose whether to pay weekly, fortnightly or monthly.
How is the interest calculated?
You loan interest is calculated daily and charged monthly. You don't pay this directly each month, it is instead added to your principal loan amount.
Can I pay extra payments?
Yes - you can pay extra on your loan to reduce the principal owed if your loan is on a variable rate. Fixed rates will have a limit on how much extra you can pay - check with your broker and/or bank.
Can I offset my home loan?
Yes, some Lenders will allow you to even offset a fixed rate.
An offset loan is a type of lending arrangement, usually for a mortgage, in which a borrower also maintains a savings account with the lender. Instead of receiving interest on the savings account, the interest payment due on the loan is calculated only on the net balance of the loan minus the savings account
Can I redraw and if so how much does it cost?
Yes. Redrawing is when you take money out of your loan account to use as cash. This can only happen when you are ahead in your payments and only with certain loan types.
Some Lenders charge a fee to redraw, others may charge an annual fee and you are exempt from paying redraw fees on each occasion.
What is the difference between fixed and variable rates?
A fixed loan set the interest rate for a minimum of 1 year and maximum of 5 years. This is negotiated between you and your lender. Fixed loans may have additional restrictions including redraw, additional payments and early payout fees.
With a variable loan, the interest rate fluctuates with the market and therefore you cannot be certain of the interest rate throughout the term of your loan.
Best to discuss your unique situation and options with your broker/lender.
Can I split my home loan into fixed and variable?
Yes - you can split a home loan ie $20,000 variable and the balance in a fixed rate.
What is Mortgage Insurance?
Mortgage Insurance is a one-off premium collected at settlement that protects the Bank for taking the risk in insuring your home loan. This is calculated uniquely, based on your specific loan and can add a significant amount to your principal loan.
Do I have to pay stamp duty?
First home owners are exempt on paying stamp duty up to a value of $500,000 on a spec home in Queensland. Subsequent home owners do still get an exemption if it is their principal place of residence.
What is considered 'genuine savings'?
If you have genuine savings you will meet the Bank's policy in saving a percentage of your deposit. Some Banks will allow gifts to form part of your deposit, others will use your tenancy ledger from a Real Estate.
Can I use my first home owners grant towards my deposit?
Yes - if you have met the Bank's policy around genuine savings.
Who lodges the first home owners grant application?
Your broker or your bank will lodge the first home owners grant application on your behalf who also then liaise with the Office of State Revenue to process it.
our first ever spec home build is underway!
Martin Locke Homes has started construction on our first spec home build. The four-bedroom home features the renowned MLH fine finishing, industry-leading inclusions and makes the most of the picturesque Elliot Springs mountain views to the rear of the home.
We've taken the experience and expertise we've developed over almost 10 years of producing the highest quality custom homes with award-winning workmanship, client satisfaction and accessible, step free designs - to now produce a ready-built option for new home buyers in Townsville.
Register your interest now to stay up to date on construction and important buyer information.