As a mortgage broker, one of the key discussions we often have with clients is whether building a new home or buying an existing property is the better financial decision. While both options have their merits, there are several financial advantages to building a new home that you might want to consider before making your final choice. Let’s break down the key points from a home loan and financial perspective to help guide your decision.
Xavier Quenon and Peter Hollows from CJ Homes sat down recently on the Listen Loan Let’s Go Pod Cast to talk about New Home Building.
1. Loan Flexibility: Construction Loans vs Traditional Home Loans
One of the primary differences when financing a new home build compared to buying an existing home is the type of loan you’ll need. Building a new home typically involves a construction loan, which oAers more flexibility during the building process.
A construction loan is released in stages, with funds drawn down as the build progresses. You pay interest only on the amount that’s been drawn down at each stage (for example, when the foundation is poured or when the roof is installed), which can help keep your interest payments lower during the construction phase. On the other hand, when buying an existing home, you must start making full mortgage payments immediately.
Key Financial Consideration:
A staged construction loan can reduce financial pressure during the build, allowing you to manage your cash flow more eAectively.
2. Lower Maintenance and Renovation Costs
Existing homes, especially older properties, often come with hidden maintenance costs. These can include outdated electrical, plumbing issues, or roof repairs, which may not be apparent during the initial inspection. Many buyers find themselves needing to spend tens of thousands of dollars on renovations soon after purchasing an existing home.
In contrast, when you build a new home, everything is brand new, and you benefit from modern construction standards. This significantly reduces the likelihood of unexpected repair costs. Plus, new homes usually come with warranties on the structure, fixtures, and appliances, giving you peace of mind and saving you money in the long term.
Key Financial Consideration:
Avoiding high maintenance and renovation costs in the early years after purchasing can save you upwards of $50,000 to $100,000, making a new build more cost-effective over time.
3. First Homeowner Grant and Other Incentives
For first-home buyers, building a new home can unlock significant financial incentives that aren’t available when buying an existing property. In many Australian states, including Queensland, the government oAers a First Homeowner Grant (FHOG) for those building or buying a brand-new home. This grant can be worth up to $30,000 depending on your location and the value of the property.
Additionally, there are stamp duty exemptions or reductions for first-home buyers purchasing new builds, which can save you thousands of dollars in upfront costs.
Key Financial Consideration:
Taking advantage of the First Homeowner Grant and stamp duty exemptions for new builds can reduce your initial out-of-pocket expenses, helping you get into the market sooner.
4. Customisation and Long-Term Value
Building a home gives you the ability to customise every aspect of the property, from the layout to the finishes, ensuring it meets your exact needs. This not only enhances your personal enjoyment of the home but also adds long-term value. Custom-built homes are generally more appealing to future buyers because they tend to incorporate modern features and designs that are in demand.
If you were to buy an existing home and renovate it to your preferences, you might have to take out a renovation loan or dip into your savings, which could significantly add to your overall cost. In contrast, including these customisations in the building process allows you to finance everything upfront as part of your construction loan, spreading the cost over the life of your mortgage.
Key Financial Consideration:
Customising your home during the build allows you to add value from the outset, and these costs can be financed as part of your construction loan, making it more manageable in the long term.
5. Energy Efficiency and Lower Utility Bills
New homes are built to meet modern energy efficiency standards, which can lead to significant savings on your utility bills. Features like high-performance insulation, double-glazed windows, and energy-efficient appliances are often included in new builds, and you can also choose to install solar panels or other green technologies during construction.
An energy-efficient home can reduce your electricity and heating costs by 30-50% compared to older homes. Over the course of 10 years, this could save you thousands
of dollars which you could funnel into your home loan and increase the equity on your property.
Key Financial Consideration:
Lower ongoing utility bills can lead to long-term savings, improving your overall financial health and making a new build more economical than maintaining an older, less efficient home.
6. Knock Down and Rebuild Options
If you love your current neighbourhood but your existing home no longer meets your needs, a knockdown and rebuild project may be a smart financial move. This allows you to stay in your desired location while creating a modern, energy-efficient home that fits your lifestyle.
Financing a knockdown and rebuild can also be more cost-effective than buying a new home in the same area, especially in high-demand markets where established homes come at a premium. A construction loan can be used to finance the rebuild, and you can potentially save on costs like capital gains tax (CGT) if it remains your primary residence.
Key Financial Consideration:
A knockdown and rebuild can increase the value of your property while saving you from paying the premium for an established home in your preferred location.
7. Investment
Building new as an investment opportunity can oAer substantial tax benefits, such as depreciation deductions on the building and its fixtures, which can reduce your taxable income. Additionally, a new property can be a fantastic way to generate an extra income stream. If it is designed with the rental market in mind – think large families needing multiple bedrooms, open living spaces, and modern amenities.
Key Financial Consideration:
A new investment build can attract long-term, quality tenants, ensuring your rental income is steady.
Building a New Home Can Offer Long-Term Financial Benefits
From more flexible financing options to government incentives and long-term savings on maintenance and energy costs, building a new home can be a financially smarter decision compared to buying an existing property. Whether you’re a first-home buyer looking to take advantage of grants, or a family looking to future-proof your living space, the benefits of building new often outweigh the immediate convenience of purchasing an existing home. This can translate into savings on interest rates, the ability to improve your savings, increase your equity, and potentially more.
At Go Mortgage, we’re committed to helping you find the best financing solution for your new home. We’ll guide you through the construction loan process, ensuring that you’re fully informed and in control of your financial decisions every step of the way.
How Go Mortgage Can Help
At Go Mortgage, we specialise in tailoring mortgage solutions to meet your needs. Here’s how we can assist:
Expert Advice: Our experienced brokers will explain the ins and outs of offset accounts and help you decide if they’re right for you.
Personalised Solutions: We’ll match you with lenders offering the best offset account options based on your financial goals.
Ongoing Support: From setup to management, we’re here to ensure you maximise your savings and stay on track.
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Related Resources
Home Loan Comparison Tool
https://www.gomc.com.au/calculators/compare-the-cost-of-two-different-home-loans/
Your Next Home
https://www.gomc.com.au/our-services/your-next-home
Your First Home
https://www.gomc.com.au/our-services/your-first-home/