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What do first home owners need to know about building?

first home owners grant

The First Home Owners Grant (FHOG) scheme was introduced to assist first home buyers to get into the property market and provide relief from the impact of stamp duty and the Goods and Services Tax (GST). Though it is available to first home buyers across the country, each State administers its own version of the scheme, and the terms and conditions vary slightly from State to State.'

You can download our Ultimate First Home Owners Guide below and FYI be sure to check out the case study below where you can sit in on a conversation I had in 2018 with a Victorian First Home Owner.

FIRST HOME OWNERS & STAMP DUTY

When it comes to government grants and incentives, what’s really important for to know is that a blanket policy doesn’t exist across Australia. Not only is Stamp Duty payable state specific, but it’s also calculated based on the circumstances of your property purchase such as if you are buying an established property, buying new or building. You can calculate the stamp duty you’ll pay as well as discover any other government grants and incentives (including the FHOG) you may be entitled to using our stamp duty calculator below.

stamp duty calculator showing first home owners grants

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ultimate first home owners guide

build in oz case study

MY DATE WITH A FIRST HOME OWNER

 

First Home Owner:
When you spoke about getting a home loan for the land, and a construction loan for the building part of the process, I am interested to know how this may affect the FHOG. By this I mean if there is there a certain timeframe that must be adhered to between buying land and beginning construction? Or will the FHOG simply be processed on the construction loan whenever the build commences?

Me:
Buying a block of land doesn’t make you eligible for the First Home Owners Grant.  But entering into a building contract does.  So you can buy land now and sit on it. You apply for the first home owners grant via your lender at the time of making an application for finance to build (ie. your construction loan).  You need to provide proof that you are building by way of a building contract signed by all parties.  You are paid the $20,000 first home owners grant when you pay the first instalment to your builder.

One of the conditions of the FHOG is that you occupy the premises yourself within 12 months of the a certificate of occupancy being granted ie. within 12 months of your home being completed.

First Home Owner:
Another question I had regarding this; is it a possibility to buy a block of land when I only had a deposit that is enough to cover the loan for this component, with the hope of using equity from that part of land after some time of repayments to secure a loan for the construction? As you would have come across many times with others looking to get into their own home, my ability to service a loan is without a doubt there, but the deposit is going to set me back substantially in time while I am paying rent, so I wanted to see if this might be a good option to source a piece of land and service that loan as well as setting other “construction loan deposit” money aside to compliment the equity when applying for a construction loan in the future?

Me:
Yes, absolutely and we are often surprised more people don’t do this.  Some estates have a covenant that you must build within a certain timeframe but certainly not all. You should always however check this if you make any enquiries on a block of land.

Some estates may be part of a land assistance program where by the developer leaves in half of the deposit which makes it possible for you to get a loan for a block with only 10% deposit instead of the normal 20%.  It’s an extraordinary opportunity actually as it lets you use the other say $15k or so that you had, to put in for a deposit on your construction loan getting you one step closer.  The developer who’s left the money in, gets that gradually paid back to them as you pay off the loan.  They are effectively going guarantor for you for half of your deposit which is awesome.  It’s designed especially for the scenario you are talking about.

First Home Owner:
This brings me to my next question which relates to LMI. I understand that this can be quite a significant amount when the deposit amount is low, but I wanted to get your view on paying LMI versus the additional time spent saving to avoid it whilst paying rent as well. For example, how could I best work through the pros and cons of…

Purchase within the next 6 months, take on the cost of LMI and stop paying $200 a week rent sooner that could go towards my own mortgage
VS
Continue to build my deposit for another 12-18 months, pay no LMI once I take out a loan and continue to pay $200 a week rent through until the time where my deposit reaches a full 20%

Me:
This is a great question and it has often surprised me that people don’t want to pay LMI, yet are happy to pay rent for another 12 months while they save.  Ideally we’d break down the sums, however we can’t do that without knowing how much you are borrowing and what deposit percentage you actually do have.

My suggestion would be first to decide what you are doing (building or buying as it will determine the type of loan etc) and find out how much you are able to borrow by talking to a construction loan specialist.  But let’s do a hypothetical estimate for fun.

You have a budget of $400,000 but only have $40,000 for a deposit (10% only deposit or 90% Loan to Value Ratio).  As a first home owner applying for a loan over 30 years you might pay around $7,000 in LMI.  Paying $200 in rent for 12 months comes to $10,400.  But weighing up the pros and cons might not be as simple as that. We are not finacial advisors thereofore it’s important that you speak first with an expert in that area.

Here's a link to some further info - www.moneysmart.gov.au/borrowing-and-credit/home-loans/fees

for more information

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The latest information on eligibility, current terms and conditions and application forms for the FHOG in each State is available on the following website - https://www.firsthome.gov.au/ and we recommend that you consult your lender or conveyancer for information specific to your own situation.

 

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Disclaimer

This information is of the nature of general comment only, and does not represent professional advice nor should it be substituted for professional advice. Whilst attempts have been made to ensure the accuracy of the information, we don't guarantee it's accuracy.  Any information we provide is not intended to provide specific guidance for particular circumstances and it should not be relied on as the basis for any decision to take action or not take action on any matter which it covers. You should always obtain professional advice before making any decision to purchase property of any kind.  We recommend you seek professional financial advice prior to entering into a contract of any kind.   Build In Oz disclaims all responsibility and liability to any person, arising directly or indirectly from any person taking or not taking action based on the information in this course.  Please refer to our privacy and disclosure statement for further information.