Wondering how to manage rent and mortgage repayments while building?
Building a new home entails plenty of considerations, and a lot of those decisions are centred around the house you’re building: the design, the facade, the inclusions, the finance… But what about your living arrangements during the build? Where and how you’re living while your new home is being built needs to be as much part of your big-picture budgeting as the purchase of the house. It’s a common concern we see by customers in the early stages; How can manage rent and repayments? Particularly for knockdown rebuilds. But it’s also a concern we see customer after customer resolve in a financially stable, stress-free way. One of the people to help them get through this time is Construction Finance Manager, Rakesh, who has some solid advice for those wanting to make their interim living situation as viable, calm and as easy on the family as possible.
Add a $10,000 buffer to your savings or loan
Before the build process starts you will be well acquainted with your savings account and loan total. So, when it comes to including your in-between living arrangement, it’s helpful to give yourself an accessible buffer within one of these things.
“I advise most customers to either add an extra $10,000 to their loan or save an extra $10,000 before signing up to the build process,” says Rakesh. $10,000 might sound like a lot, but as Rakesh says, in the grand scheme of house purchase, it is a good indication if you’re financially able to to take on a new mortgage commitment.
Take advantage of the Construction Loan arrangement
When you build your home, the most beneficial loan to acquire is a Construction Loan. Generally, this is delivered in five progressive payments outside of the initial deposit over a payment schedule with the builder. These are interest only repayments until the build is complete, so your actual repayments are far less over this time.
“The interest only component of this loan means that you are committing to the interest payments on your home loan during the construction period, typically when you may have other commitments, such as rent while you build your new home” says Rakesh. “This helps you manage both commitments more comfortably during the building process and then when you move into your new home and you no longer have rent to pay, you can revert your home loan repayments to Principal & interest and start working on paying off your home loan quicker
If it’s possible, live with family
This isn’t a solution for everyone, as there are plenty of mitigating factors to being able to reside in someone else’s home. But, if the opportunity is a feasible one, Rakesh believes that this is the most financially beneficial option as you don’t have the extra commitment of paying rent while you save or you are paying Construction progress payments.
“In my opinion, if you can do this, it is the best route,” says Rakesh. “You will be able to continue to save over the course of the build with interest only payments and your life won’t feel as interrupted in a familiar setting. Assuming your family gets along!”
Have a budget plan in place
Have a good budgeting plan and stick with it. This is the most solid advice, Rakesh believes, that anyone building their first home should take. Iif you aren’t confident in creating one yourself, financial consultants like Rakesh are able to offer their experience and service.
“I sit down with all of my customers and create an action plan,” he says. “I give them a break-up of what the construction will look like, I give them a budget and then we take an overall look to see if they are out of picket.
“Throughout the process, I call to see that everything is ok and they’re coping ok with the budget, and if there are any problems I can advise them on exactly what to do next.
“But, to be honest, for 95% of my customers, they have all made it through without any financial stresses because they take their budget seriously, and due to the process at the beginning that sets them up to be ok. The market can be tough sometimes, so I am always on hand. I consider my role as a long-term relationship, and here to help even after the build.”
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