construction and unexpected building costs

It pays to be aware of unexpected building costs so you can budget for the construction of your new home – and complete it with your finances intact.
By making allowance in your budget for a range of hidden costs, you should sail through the construction process and settle down to enjoying your brand new home with your finances in good shape.

Soil tests

Most councils require your builder to conduct a soil test. This determines how much the soil expands and shrinks with changes in moisture content, which can impact your home’s foundations. Your builder will then need to design your home’s footings to ensure they cope with the type of soil and possible movement.

Sustainability features

Lorem ipsum dolor sit amet, consectetur adipisicing elagna aliquaIn states like New South Wales, home builders are required to obtain a BASIX certificate, which assesses the sustainability of a home’s design. Even in areas where this isn’t essential, adding environmentally-friendly features like solar panels, water tanks and thermal insulation can be a good idea. They may add to the initial cost but reducing your home’s eco-footprint can lower utility bills, and potentially enhance your home’s market value.

Appliances

Be sure to check if any appliances are included in the cost of your home. Some, like a refrigerator and washing machine, almost certainly won’t be. That’s not a problem if you already have these appliances but check that they’ll fit the space provided in your new home.

Creature comforts

Check if curtains, blinds and other soft furnishings are included in your home’s construction costs. Where they’re not, it’s important to allow for what can be a sizeable expense.

A contour survey

A contour survey shows the elevation, or changes in height, of your land at various points. The flatter the land, the easier and cheaper it is to build on. Sloping sites may offer the potential for great views, but they can be more expensive to build on. A significant slope can call for the involvement of an architect and specialist building teams, which can send the cost soaring.

Landscaping and driveways

Be very sure to read your building contract carefully to understand exactly what you’re buying. It can come as a surprise to find your finished home doesn’t come with landscaping, paths, a driveway or even a mailbox – extras that can quickly add up.

Upgrades

The base price of a home will often include base-level finishes. If you want better quality carpets, tiles, kitchen benches and other finishes, be prepared to pay more.

Modifications

Even minor modifications to a builder’s plans can see the home’s list price fly out the window – more so if it means major structural changes.The real hit to your hip pocket can come if you alter the plans mid-way through construction. The key is to be comfortable with how your home will look and feel before works commence.

Delays

Hold-ups with materials and wet weather are common reasons for building work to take longer than expected. This may not alter the cost of your home but it can impact your budget if you’re renting while your new place is under construction. It makes sense to plan for this by allowing some wiggle room for delays in your budget.

Construction loans and what you should know

If you are thinking of building your own home, you will need to be familiar with the ins and outs of construction loans.
Construction loans are just not as straightforward as simple home loans. There are additional decisions to be made about the structure of the loan, additional documentation is required and the funding is released in an entirely different way.
DOCUMENTATION
In addition to documentation about your finances, income and identity, your application for a construction loan needs to include contracts or tenders for the construction, as well as the plans so that a valuation can be performed.Further documentation will also be required before the first payment is made from the lender to the builder, including a schedule of the payments to be made (called drawdowns), the builders’ insurance details and the final plans that have been approved by the local council.
STRUCTURE
To avoid having to contribute your full deposit and being charged interest on the entire loan amount from the moment the land purchase settles, you can split your mortgage into a land loan and a construction loan. At settlement of the land purchase, you pay lender’s mortgage insurance (LMI) on the land loan, if LMI applies, and start being charged interest and making repayments on the balance of the land loan. The interest and repayments on the construction portion then kick in only as each drawdown is processed.
funding
The drawdown schedule is very important, as you don’t start paying interest on each portion of the loan until it is paid to the builder – you, the lender and the builder need to be satisfied with the schedule.For the lender to make each payment to the builder, you will need to fill out a drawdown request form from your lender, and submit it to your builder. The builder can then send the lender your form with an invoice for that part of the payment and, after the lender is satisfied that the work has been completed and is up to the standard expected in the valuation, the drawdown can be completed with a payment to the builder.Any changes to the contract and plans can trigger a reassessment of the loan, so be as sure as you can be that the plans and contracts the lender sees are final, and it is also worth trying to pay for any small amendments from your own pocket, rather than changing the loan and risking a reassessment. Problems can also arise when other work on the site that isn't completed by the builder needs to be paid for, as some lenders only make the remaining funds of the mortgage available after the completion of construction. While some builders will include subcontractors as part of the main contract, meaning that they can be paid by the builder as stages of work are complete throughout the drawdown schedule, others will not do this. Again, this may make it necessary to pay from your own pocket.
Our brokers have the expertise to find you the construction loan that best suits your needs.