Understanding New Build Finance

October 24, 2023

If you're considering building your dream home, understanding the ins and outs of financing is crucial. Two common methods are construction loans and turnkey, each with its own set of advantages and considerations.

Is It Difficult to Secure a Construction Loan?

Contrary to popular belief, obtaining a construction loan can be easier than financing an existing home. Banks often prefer lending for new builds due to fewer concerns about repairs, maintenance, or insurance. In fact, special interest rates and terms are sometimes available for new builds.

How Are New Builds Funded: Construction Loan vs. Turnkey?

With a construction loan, you gain ownership upfront. The bank funds both land acquisition and construction progressively. This approach is typical for house and land packages, with the land title created first.

In contrast, turnkey homes involve signing a contract and payment only upon moving in, with no ownership until settlement. This is common for apartments and townhouses, as land titles are typically unavailable until completion.

Deposit Requirements: Construction Loan vs. Turnkey

For a construction loan, the bank may fund up to 85% of the land and build cost, requiring a minimum 15% deposit. This is split into two parts: land acquisition and construction. The advantage is lower equity margins and lower interest costs.

In turnkey financing, banks can fund up to 90% of the lower of the purchase price or registered valuation. However, interest rates increase with lower deposits, accompanied by a Low Equity Margin (LEM).

Loan Approval Period

Both methods offer approval windows, varying from 6 to 15 months, depending on the lender. With construction loans, you settle on the land immediately and secure building consent within the approval window. Turnkey homes carry a higher risk, as approval may expire before completion, requiring re-application based on the lending criteria at the time.

Valuation Considerations

All banks require registered valuations for new builds. For construction loans, valuations are conducted once plans are ready, presenting less risk. In contrast, turnkey valuations are performed near completion, with any valuation drop potentially increasing the required deposit.

Total Cost Analysis

Construction loans factor in interest costs over the building period. A proficient builder can reduce these costs by efficiently managing the project. Conversely, turnkey financing avoids interest payment until completion but indirectly passes on higher costs due to developers or builders obtaining more expensive funding.

In your quest for a dream home, understanding the nuances of construction financing is essential. These insights empower you to make informed decisions, ensuring your journey to homeownership is as smooth as possible. For expert guidance on financing your new build, reach out to Eugene Bartsaikin from Twine Financial Advisers ( Their experienced mortgage experts are dedicated to helping you find the right funding solution for your unique needs.



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