Buying off-the-plan can be a great choice for a first home buyer looking for a good deal on a brand new home. But there are a few important things you need to know before you take the plunge.
Below, we’ll take a look at the basics of buying off-the-plan, including what it is, how you can finance it, and how you might be able to secure a home without putting any of your own money down.
You purchase a home that hasn’t been built yet, based on the plans. You get your foot in the door early to secure a quality home, freshly built, with modern materials and building techniques.
So what’s the catch? You might need to wait a while. Off-the-plan builds are sometimes in the form of ‘home and land packages’, where you pick a home from a selection, put down a deposit and the build team gets cracking. But they can also be a part of a larger development, where a significant portion or even all of the homes in that development must be financed first. In most cases, you need to be ready to wait if you’re going for an off-the-plan purchase.
Financing an off-the-plan buy is, on the surface, similar to getting a regular first home loan. You engage with an experienced adviser, provide them with your information, and they’ll come back to you with an approval (or not, depending on your circumstances).
However, buying off-the-plan does come with some additional hangups you need to watch out for.
First, some lenders have limits on the amount they’ll let you borrow for an off-the-plan build. Your construction could be delayed or even abandoned, and that means the mortgage they provide you with loses its security. This is rare, but it is a consideration.
Second, buying off-the-plan means you need to put a deposit down before the build starts, but you don’t actually have to settle until much later down in development – months or years in some cases. That gives you plenty of time to set up finance, but don’t let the extra time let you get complacent. Secure finance or pre-approval before the build starts. Often, you’ll actually be required to do so.
Last, make sure you check the contracts thoroughly – ideally with a solicitor or legal expert. Off-the-plan contracts are a little different than regular sales, especially when it comes to what happens if you decide to change something. A different type of sink, different material for the floors, or even an extra light switch can mean extra costs. The contract you sign should stipulate the costs of these changes. Make sure it does and that you understand them.
If you need a hand getting finance don’t be afraid to go to a broker – they’ll be able to do the legwork for you and secure you a good deal.
What about grants?
Using the First Home Loan and the First Home Grant provided by Kāinga Ora is a savvy choice for first home buyers. By buying off-the-plan, you can double the amount you receive from the grant. For two people, that could be up to $20,000!
Combine that with the First Home Loan which lets you use that as a 5% deposit from selected lenders, and you could secure an off-the-plan home to the value of $400,000 without putting any money of your own down. Not bad eh? You can find out more about this in our guide to the First Home Buyer’s Grant.
If buying off the plans sounds like an option for you and you need some friendly, impartial advice on funding it, get in touch with the team at Money Empire. We’ll help you plan your off-the-plan.