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How to get the first home owners grant when building

 

Wondering how to get the first home owners grant when building?  Recently I received a terrific email from a client who asked some great questions about how to get the first home owners grant when building in Victoria.  He asked lots of valuable questions.  I share my conversation with the first home owner here.

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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 (in Victoria, amount differs from state to state) 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.

The Governments First Home Loan Deposit Scheme can help you save for a deposit sooner.  You can learn more about it  at https://buildinoz.com.au/first-home-loan-deposit-scheme/

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.  Then you really need to take advice from a lender to help you decide what will be best suited to your personal circumstances.

Whilst it sounds like you know a bit about LMI anyway, here’s a link to some further info - www.moneysmart.gov.au/borrowing-and-credit/home-loans/fees





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