How do I fund building a home?

If you're building a new home or planning major renovations to your existing home, a construction loan is generally the most appropriate funding option.

If your thinking of buying a block of land to build a home, then you would firstly need to find a block of land to suit the home you are thinking to build. Once you have decided on a block, you will require a tender of cost to construct the proposed home.

Inturn Starfund can arrange funding of the land settlement and a limit of funds to build. Construction must commence within 12 months of the land loan settlement.

Before construction can comence, you will need to prepare the following documentation:

* Development Application Approval (DA)
* Council Approved and stamped plans
* Fixed price building contract by a licenced and experienced builder
* Builders CV
* Builders home warranty insurance

The difference between a construction loan and a standard home loan is that instead of a lump sum payment at settlement, the loan is usually drawn down in stages, these are called "Progress Payments" which are paid to the builder.

As work progresses you will need to make progress payments to the builder.

So there are two stages when it comes to building a home, whether it's for owner occupation or investment purposes.

Stage 1: Purchase of the land

Stage 2: Construction drawdown commences and progress payments are paid to the builder in portions until the home is completed and occupancy certificates can be issued.

(source:starfund.com)

Insurance you need

There are different types of insurance that you can take out on your home and mortgage. As with trying to find your actual mortgage you should shop around for any insurance you take out – there are some good deals, and some very poor ones too that should be avoided.

You’ll probably find that your bank/mortgage provider will try to get you to take out a policy with their own company – while they may push it hard, it’s often not the best deal available so shop around on the internet and you’ll probably be able to save yourself quite a bit.

Buildings And Contents Insurance – You’ll want to insure your home and it’s contents against damage. It’s important to get it right when estimating how much cover you need – you don’t want to pay over the odds for excessive cover, and neither do you want to underinsure.

Look at your possessions – do you have any antiques that need extra protection? What type of furniture do you have? How much would all of it cost to replace? Shop around on the internet to find some great deals and you’ll save yourself thousands in the process (as opposed to signing up to whatever your mortgage provider is trying to push on you).

Mortgage Payment Protection Insurance – this type of insurance protects you against any loss of income that may affect your ability to make your mortgage payments. This can be an important cover, especially if you do not have the cashflow to make mortgage payments should you lose your job/income source.

The two important things to look out for are (1) when the insurance payment starts after your loss of income (for example, is it 30 or 60 days?) and (2) how long are you covered for (you can often get 12 to 24 months coverage).

As with most insurance types, these vary widely so make sure you shop around online and get the best deal for you.

Life Insurance – With this type of insurance, should you die your dependents will receive a sum of cash to replace a part or the full amount of your earning power. If you’re single then this is cover that you don’t really need – but if you’ve a wide and children who depend on you putting food on the table and a roof over your head, it may be cover that you should seriously consider.

Mortgage Protection Decreasing Term Insurance – This is a unique type of coverage where as the amount owed on your mortgage decreases over time, so do your insurance payments. The logic is that as your mortgage decreases, you need less to cover it should anything bad happen – so the insurance should also cost less.
Critical Illness Cover – As you might think, critical illness insurance protects you in the event that you develop a very serious injury/illness (the types of illnesses are pre-set in the policy).

Standard Illness Cover – Also known as permanent health insurance, this type of policy covers you against most types of illnesses (typically you can expect 50% of yor income to be paid out until recovery).