The two most common types of NEW property contracts are Land and Build Contracts and Turnkey Contract. Each are outlined below.
There are two contracts involved here - one land, one build as the land may not be owned by the build company.
The big difference between the land & build contract over a turnkey is that there are progress payments involved. These progress payments are funds that go to the builder at various stages of the project. Think of it as a 'pay as you go' approach. You start paying interest on your loan as soon as the first payment is made. This is typically at settlement of the land - and your loan payment increases as each new progress payment is made.
Firstly, a 10% deposit will be required to secure the land contract. You then settle the land after your contract is unconditional.
EXAMPLE
$699,000 property whereby the
Land costs $325,000
House costs $374,000
PROCESS
Day 1 - Sign Conditional Land Contract subject to due diligence approval of usually 15 - 20 working days. During your due diligence period you will meet the Builder and finalise the home design and sign a Build Contract that your bank will need to see to fulfil your due diligence on the land.
If your finance is approved based on the valuation / build contract / income levels / deposit - you can then declare your land contract unconditional.
Day 15 - 20 - Go unconditional on the land contract and pay $32,500 deposit to Land Vendor's solicitor's trust account.
Draw down $292,500 to purchase the land in full from loan provider. You are now paying your mortgage on this loan.
Next, you pay 10% of the build contract ($37,400) to the Build Company and they start working drawings / site survey / Geotech report etc. If you don't have the build deposit the Bank may advance this to the Build Company once you have settled on the land.
The second draw down on the build contract loan tends to be 20% of the total balance on the build contract.
The next payments can be roughly summed as up as follows: -
Turn Key Contracts are quite simple in their structure. You pay an initial deposit (usually 10% of the total price) and then nothing until build completion. You pay the remaining 90% once the house has received its Code of Compliance Certificate (CCC).
The contract is (as the name suggests) simple enough that you can turn the key and walk in the door. The Builder / Developer is your bank and is financing you into the home. Important to note that they have added margins into the Build contract to cover the risk.
An advantage to you the purchaser is that until the property has been completed and settled, you don’t make any loan repayments or pay any interest, allowing you additional time to save before you start to pay off the loan.
EXAMPLE
$737,000 property whereby the
Land costs $325,000
House costs $412,000
PROCESS
Day 1 - Sign Conditional Land & Build Contract subject to finance approval.
Day 14 - Go unconditional and pay 10% deposit - i.e. - pay $73,700 to the Vendor's solicitors trust account for the full package deal (both the land and the build).
The Building Company prepares working drawings / Build Consent / Starts House build through to gaining CCC.
The Loan provider gives you the remaining 90% of the house and land package ($663,300).
You move in.
To sum up, you pay 10% down as deposit and nothing more until CCC is issued. (The Builder / Landowner essentially funds the build). Then you pay the remaining 90% and move in.
We would be happy to put you in touch with one of our expert home and land mortgage brokers, who will provide you with any financial assistance you may need.
