Navigating New Build Finance: A Kiwi’s Guide to Your First Home
Buying your first home is one of the most significant purchases that you’ll ever make, and in New Zealand more first-time buyers are choosing to build rather than buying an older property; hence navigating the new build finance is more important than ever.
The allure of customisation, coupled with government incentives, is driving a surge in new builds. But how do you navigate the financial maze that comes with building a new home? This guide breaks down everything you need to know to make your dream home a reality. From market trends and financial preparations to choosing the right lender, we’ve got you covered.
Ever wondered if building a new home could be more cost-effective than buying an existing one?
Key Takeaways
- Discover why Kiwis are increasingly opting for new builds and the current market trends
- Understand the financial benefits of building your own home, including energy efficiency and customisation
- Learn the essential steps to prepare financially for your new build journey
- Explore how new build finance and construction loans work, and find the best lender for your needs
- Get practical tips for assessing your financial situation and securing favourable loan terms
Exploring the New Build Dream in New Zealand
The New Zealand housing market is evolving, with a noticeable shift towards new builds.
This trend is not just a fleeting phase; it’s driven by a strong demand for personalised homes and the government’s active role in supporting first home buyers. These new builds offer the freedom to craft a home that resonates with your lifestyle and needs. The ability to choose everything from the layout to the finishing touches makes the process attractive to many Kiwis. The property market here is robust, with a continuous rise in the need for new homes ensuring a vibrant environment for potential builders.
Government initiatives have also played a vital role in this trend. Programmes designed to ease the financial burden of first home buyers have made the dream of owning a home more achievable. Furthermore, sustainable building practices are gaining traction, aligning with global shifts towards eco-friendly living. Builders now offer environmentally conscious options, making it easier for you to contribute to a greener future while enjoying the benefits of a new build. The blueprint of a sustainable home not only reduces your carbon footprint but also promises long-term savings on utilities.
The Appeal of Building Your Own Home
Building your own home comes with a plethora of benefits.
Firstly, you get to design a space tailored to your needs. Whether you want an open-plan living area or a quiet nook for reading, the choice is yours. A new build often requires less maintenance initially, saving you both time and money. Plus, you have the peace of mind knowing everything from the wiring to the roofing is brand new and up to code.
Energy efficiency is another significant advantage. Modern building practices incorporate the latest in sustainable technology, which can lead to substantial savings on energy bills. From solar panels to high-grade insulation, these features are not just good for the environment; they make economic sense too. Moreover, building from scratch allows you to pick the perfect location and layout, ensuring your new home fits seamlessly into your lifestyle.
The entire building process can be a rewarding journey where you get to guide your vision to reality, but obviously within your budget and that’s why the new build finance is so important.
Key Steps to Prepare for Your New Build Journey
Before you dive into the new build adventure, establishing a realistic budget is crucial. You need to have a clear understanding of how much you’re willing to spend and what that budget will cover.
You then need to know the exact costs for the build. This will either be your purchase price with a turn-key contract, or you will want a fixed price contract for the build. In most cases the banks will insist on a fixed price contract and especially if you have less than 20% deposit. They will also generally want builders to be either Certified Builders or Master Builders so there are guarantees with the work including the completion clauses.
This step ensures a smooth building process and helps you avoid nasty surprises down the line. Enlisting the help of financial advisors can provide valuable insights into your spending plan, ensuring that every dollar is accounted for.
But let’s not kid ourselves—unexpected costs can and often do arise. Setting aside a contingency fund can help cushion any unforeseen financial blows. The early stages of planning are where you lay the groundwork for a stress-free build. By taking the time to thoroughly plan, you can pre-empt many of the common pitfalls associated with building a new home. Remember, a stitch in time saves nine, and early financial planning is the key to a successful new build journey.
Assessing Your Financial Situation
Understanding your financial situation is like having a roadmap to your new build dream.
First, a clear view of your credit score can significantly impact loan approvals. A strong score opens the door to better loan terms, so it’s worth checking your score and addressing any issues before you apply. Income stability is another critical factor. Lenders want assurance that you’ll be able to meet your repayment obligations, so demonstrating consistent income is paramount.
Existing debts can also impact your borrowing capacity. If you’re juggling multiple debts, it might be wise to consolidate or clear some of them before seeking a loan. And don’t forget the deposit! Having a substantial amount saved not only boosts your borrowing power but also demonstrates your commitment to the process.
Your mortgage adviser can help with advice on the new build finance options, but also about the process in general.
Construction Loans: How They Work
When it’s time to finance your build, understanding the types of construction loans is essential.
There are two common types of new build options – the turn key and the traditional construction loans where you pay for the build progressively.
Financing a Turn Key Purchase
Most people will prefer purchasing a new build that is a turn-key due to the fact that you just need to pay the deposit at the outset with the balance paid on completion and when you settle the purchase.
The finance is quite easy and there is no risk that costs will increase, because you have an agreed price. The purchase price is agreed when you sign up for the new home and it’s based on the specifications which form part of the agreement too. During the build there are no additional payments, and no interest as there is not a loan until the home is completed.
But there is also some risk as you pay your deposit and assume that the build will be completed for you within the timeframe. We’ve seen builders struggle to meet the timeframes and also have seen some go out of business leaving the homes uncompleted.
Construction Loans – Progressive Payments
These loans differ from traditional mortgages in that they release funds in stages.
Known as progress payment loans, they allow you to draw down funds as you reach different stages of the build. These types of loan align with the construction timeline which will form part of the fixed price contract, and therefore ensuring you have the necessary funds when needed.
You have to pay for the land first, and then make payments as stages of the build are completed. There is a final payment which is generally due when the builder has completed the last stage and the Council has signed off the work as ‘complete’ but sometimes the bank will not release the last of the funds until the code of compliance has been issued.
These are almost always interest-only loans which are designed to keep the initial payments lower while your new home is being built and while you are unable to live in it.
Choosing the Right Lender for Your Build
Finding the right lender is important as you want a bank that you can work with.
Loan flexibility is a critical consideration and especially with the standard construction loans where there are progressive payments. These building projects can change, and having a lender who can accommodate those changes without hassle is invaluable.
There are some options with more competitive interest rates that can significantly affect your costs, so it pays to speak to a mortgage adviser that is experienced in new build finance and has access to the best options for you.
Summary
Building your first home is a thrilling journey filled with opportunities for customisation and financial growth. From understanding market trends and preparing your budget to selecting the right construction loan and lender, each step is crucial. By taking the time to thoroughly prepare and explore your options, you can confidently embark on your new build adventure.
So, are you ready to lay the foundation for your dream home?
What steps will you take today to turn your vision into reality?
Frequently Asked Questions
What is new build finance, and why is it important for first-time homebuyers in New Zealand?
New build finance refers to the funding options available for purchasing a newly constructed home. It’s crucial for first-time buyers as it often includes benefits like smaller deposits and government incentives. In New Zealand, schemes such as the KiwiSaver can make owning a brand-new home more accessible. Understanding these options can help you make informed financial decisions and potentially save a significant amount of money in the process.
How do I qualify for a new build mortgage in New Zealand?
To qualify for a new build mortgage, you generally need a good credit score, proof of stable income, and a deposit, often around 10-20%. Some lenders may offer more favourable terms for new builds, like lower deposit requirements. Additionally, government programmes like KiwiSaver can assist with your deposit. It’s wise to consult with a mortgage advisor who understands the nuances of new build financing in New Zealand to tailor the best plan for you.
Are there any benefits to choosing a new build over an existing home?
Absolutely! New builds often come with modern features, energy-efficient designs, and minimal maintenance needs. They also typically offer better warranties. Financially, new builds may qualify lower deposit requirements now and moreover, purchasing a new build means avoiding the often costly renovations and maintenance often needed for older homes. This combination of factors makes new builds an attractive option for first-time buyers in New Zealand.
What should I consider when choosing a lender for new build finance?
When selecting a lender, look for lenders who specialise in new builds as they have tailored packages that match the contracts and should also have competitive interest rates and possibly incentives too. The flexibility with repayment terms is critical so ask your mortgage adviser who can provide insights into the best lenders for your specific needs.
Can I use KiwiSaver to help purchase a new build home?
Yes, KiwiSaver can be a valuable resource when buying a new build. If eligible, you can withdraw funds from your KiwiSaver account to use as a deposit for your new home. Depending on the type of build contract, your KiwiSaver may be applied to the purchase price with a turn-key or to the purchase of the land with a standard build contract.