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. “Particularly for knockdown rebuild, their equity works quite well for being able to easily add this buffer.”
$10,000 might sound like a lot, but as Rakesh says, in the grand scheme of house purchase, it is a good indication of if you’re financially able to manage a mortgage long term if this buffer is difficult to arrange.
“If you feel you’re struggling to add an extra few thousand to a big purchase, it could indicate you need to save a little longer or reconsider your overall loan amount. You may not ever need to spend your buffer, but it’s there to give you peace of mind and can be used on your mortgage down the track.”
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 aren’t paying your full mortgage repayments along with rent,” says Rakesh. “So managing both, assuming you have budgeted adequately, isn’t as difficult as most people think. It’s not until after the build that normal mortgage repayments begin, and by then you’ll be living in your new home.”
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.
“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 board, and your life won’t feel as interrupted in a familiar setting. Assuming your family gets along!”
Consider living in a lower rent area
If you’re doing a knockdown rebuild it probably means you’re in love with your neighbourhood, and leaving it can be a bit daunting. Or, you’re building on a new lot and it will be logistically convenient to stay in your current rental. But, financially, it might be a better idea to move to a slightly lower rent area (assuming you will not be losing money in a longer commute).
“This isn’t for everyone, but it’s definitely something worth considering,” says Rakesh. “If you are happy and able to minimise the spend on your rent by opting for a lower income area, or a smaller house in your existing area, it will ease some of your budgeting concerns and it is relatively short term.”
Have a budget plan in place
Have a good budgeting plan and stick with it. This is the most solid advice, Rakesh believes, that any new home builder should take. And, if 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 got through everything and 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, but it’s been great so far. I consider my role as a long-term relationship, and here to help even after the build.”
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