Starting – Page 10 – A New House

New House Insurance

Your builder has given you a handover date . . . so you need to organise property insurance to start on that day.

How Much House Insurance Will You Need ?

Well you have only just finished building so isn’t the price you have just paid the right amount?

I think you need to add 30%-50% to the build cost.

Why Do You Need Extra Property Insurance?

Well building on a new development is cheaper and an entirely different proposition to having a house replaced when it is surrounded by other houses.

Here are some of the reasons for extra costs:

Demolition and removal of material from the site;
Once fences are built around the site and perhaps trees planted on the nature strip builders may consider the site ‘Restricted‘;
Gardens, and paths, which may have been excluded from the initial construction cost will have to be replaced;
The original builder may not offer the standard house you had previously built meaning architects may need to be engaged. (Even though you had a project house built you may find yourself up for a cost structure of a custom house)
Building regulations may change.

All these extras make it important to make sure you don’t under insure.

The costs of possibly over insuring are small, compared with having to deal with the trauma of loosing your home. . . . Then having a bill of tens, or even hundreds of thousands of dollars, to replace the house.

Also see Danger of Under Insuring

What Is A Project Home Builder?

If you are new to thinking about having a new house built you may have heard the term ‘Project Home Builder’ and wondered what it means.

Project Home Builders base their business on building large numbers of houses using a limited range of designs.

By cutting down on the proportion of individual design input on each house, and the ability to negotiate bulk discounts, they can build houses at a significantly lower cost than would be otherwise possible.

Because of the cost they are a very popular way of having a house in Australia. I have even heard self builders say they couldn’t build a house as cheaply as a ‘Project Builder’.

Customisation

Although Project builders work on a limited number of designs there is still a fair amount of Customisation possible.

Externally customisation options include:

Different facades (Most builders offer at least 2 facades styles for each design)
Choice of bricks or render
Choice of different Roof Tiles or Metal Roof
Handing (Building a mirror image)
Changing window sizes

Internally it is normally possible to make some modifications to floor plans such as enclosing rooms, adding doors and making some rooms bigger by making others smaller. Some Project Builders are more accommodating than others when it comes to making internal changes.

Drawbacks.

As each builders offer you a limited set of home plans you may get good reports about a builder.. . . but if you don’t like their range of plans…you’ll need to go elsewhere.

Project Home Builder’s designs are mainly suitable for flat, rectangular blocks. If your block slopes, or is an awkward shape the costs can quickly escalate. For really awkward sites many Project Home Builders may even refuse to build.

Finding a Project Builder

Just visit one or more local ‘Display Villages’ and you will find several project builders. Just understand when you go around the houses that each ‘Display House’ has lots of expensive extras not included the standard priced house.

For more advice see the ‘anewhouse Guide to Choosing a House’

Specification

Control of costs is really important if you don’t want to run over budget on your new home.

One of the key areas in controlling costs is understanding the specification of the house.

One of the traps that many people fall into is paying a deposit based on an initial specification, They are then hit with major costs down the track to upgrade to the standard they want.

There are really 3 stages to the Specification of a New House.

Basic Stage

This covers the building of the main structure of the house and includes:

Floor Plans
External Elevations (what the house will look like)
Foundations
Construction (eg Brick Veneer , Double Brick. timber clad, etc)
Windows
Basic Insulation

Detailed Design Stage

This is when the things like fittings are detailed such as:

Kitchen cupboards and counters
Cooktops and Ovens
Bathroom Fittings
Tiles
Electrical Fit out

Watch out for the builder including Prime Cost Allowances

There are extensive checklists in the Guide to Selection that will help you through this stage.

Finishing

These are the finihing touches which may be included by the builder, but are usually done by the homeowner after the move. These typically include:

Driveways
Paths
Gardens
Pergolas
Pools
Outdoor Kitchens

If these are the things that you want included in your new house you need to be aware of the likely cost and make sure that you have enough left in your budget.

See Budget for similar posts

New House Guarantees and Warranties

I’m always a bit suspicious of guarantees and warranties!

In my opinion most Guarantees are really just a piece of paper that explains how the Guarantor will fulfill their legal liabilities. (In some cases they explain a process which is less than fulfilling their liabilities)

Bearing in mind I’m not a lawyer this is how I see the situation with regard to new house ‘Guarantees’ and ‘Warranties’

Standard of Build

Under the ‘Standard Domestic Building Contracts’ the builder is required to build a house that is ‘suitable for purpose’.

That is it complies with the building codes and regulations and will not suffer structural damage or have any other major defect.

If you suffer a problem you can go back to the builder under the contract. In effect you have an Implied Guarantee.

If the defect was as a result of his construction or the materials they supplied, the builder is liable to remedy as long as the time since the contract was completed is ‘Reasonable’.

What is Reasonable?

Well it will depend on the State laws but in Victoria Section 134 of the Building Act 1993 places a limit of 10 years on the builders liability.

Previously builders were being chased for problems arising 20 or 30 years later, which was considered unreasonable. (If you want to see how unreasonable some homeowners can be see this link: Unreasonable Behaviour)

Builders Warranty Insurance

One source of confusion is that the Builder Warranty Insurance for new houses only lasts for the following periods post completion (or contract termination):

6 years for structural defects
2 years for non-structural defects.

This warranty insurance can only be claimed by the home owners, if the builders can’t meet their liabilities through death, disappearance, or been declared insolvent. . . . If the builder is still trading its up to the builder to provide the remedy Not the Insurer.

Taking a Mortgage Repayment Holiday

Have you hit trouble keeping up with your new home mortgage payments?

Even the most careful planners can face financial trouble when something unexpected occurs.

The good news is that you may be able to qualify for a repayment holiday. Here’s some advice about putting your mortgage on hold while you deal with a financial emergency.

What Is a Repayment Holiday?

A repayment holiday is a period during which you do not make mortgage payments.

The most common reason to request that payments be paused is the loss of a job. Some people ask a lender to pause their mortgage payments during maternity leave or an extended trip.

While mortgage payments may be put on hold during a repayment holiday, borrowers also have the option to pay a reduced amount during this period. . . . . This option is ideal when a person experiences a reduction in income without completely losing their source of income.

Applying For A Repayment Holiday

You’ll have to contact your mortgage lender to apply for a repayment holiday.

If you have been making extra payments to pay off your mortgage more quickly, it will be easier to take a repayment holiday, as you’ll essentially be cashing in on the extra payments that you’ve already made.

However, people who have not made extra payments on their mortgage will have to prove hardship in order to qualify for a repayment holiday.

Get expert advice for a repayment holiday feature for your home loan from mortgagechoice.com.au.

Costs Of Pausing Mortgage Payments

It is important for you to understand that you’ll be paying a price if you opt for a repayment holiday.

Interest continues to accumulate during this period. This interest will be added to the total amount that you owe on your mortgage, so you’ll end up paying interest on the interest in the end.

Taking even a short repayment holiday can increase your monthly payments over the life of the loan.

While the amount added to your monthly payment may be small, the total extra amount you’ll be paying adds up quickly.

For example:

Imagine that you take a repayment holiday for six months after paying your mortgage down for a year.

This short pause can add $50 or more to your monthly mortgage payment.

If you started with a 30-year mortgage, you could be adding over $17,000 to the total cost of your home.

The high cost of taking a repayment holiday makes it ideal for homeowners to opt for a reduction in repayments rather than a full pause of their payments.

You can minimise the financial hit associated with pausing your payments by paying as much as you can each month.

Taking a repayment holiday from your mortgage can help you get through a tough financial situation, but you should remember that there are costs associated with this option.

Contact your lender immediately if you are experiencing a financial hardship. Your lender can help you determine the best option for keeping your mortgage in good standing while you work through your situation.

This article was written courtesy of Mortgage Choice.

Access to Rear

With the narrow blocks that are becoming more common you see a lot of new houses built right to the side boundary on both sides.

In some cases that can’t be avoided, but I think there is a real advantage in buying a block with enough room for a path on at least one side of the house, preferably both sides.

Here’s some reasons why:

There will be extra costs for special wall and roof details, constructing foundations, and building walls on the boundary.
You might have ongoing property maintenance issues if you fall out with your neighbour.
If you need to do some gardening you can avoid taking top soil, plants and other dirty things through the garage, or even the house, if the garage doesn’t have a back door.
Many properties have drainage or sewerage easements with a Manhole (or in these politically correct time an access pit). If the council/water authority needs access you may need to take time off work rather than just leave a gate open for the day.
If you have a dog in the back yard then looking through a gate helps to stop them getting bored while you are out at work.
If you want a detached property why have it looking like a terrace?

Perhaps there are some advantages of building to the boundary. If you have found any let me know.

For more things to think about when buying a block see:

Guide to Buying a Block

Protect Your Block From Dumping

A regular problem with vacant new house blocks is they are used as a convenient dumping ground for other builders.

It’s much cheaper to dump on a nearby site than haul the material to a tip and pay tip fees.

If you are are really unlucky the material may be contaminated (for example asbestos waste). . . . which may mean you have to pay for testing and additional tip fees to dispose of it.

Fence the Site

The best advice I can give is to make your site seem loved by erecting a fence, mowing any grass and/or keeping weeds under control.

It doesn’t have to be an expensive fence, something like a 1.2 m high dog mesh supported by steel star pickets at 4-5m intervals will be fine, and should only cost around $5-6/m.

If you have got quite a few posts to put in it can be worth hiring, borrowing , or buying a post driver.

Light fencing like this is not foolproof, but it makes things a little more difficult for the dumper. This means they are more likely to look for a block where nobody seems to be taking an interest.

See Guide to Buying a Block for more advice.

Lenders Mortgage Insurance

One financial cost that some people don’t factor into their calculations when buying a new home is Lenders Mortgage Insurance.

What is Mortgage Lenders Insurance?

This is a cost you will have to pay if you haven’t got a 20% deposit on the total value of the completed house and land.

In other words your Loan to Value Ratio (LVR) is more than 80%.

The banks regard high LVR’s as high risk, but instead of increasing the interest rate they require you to take out an insurance premium in their favour in case you default.

How Much?

Well the amount will depend on the amount you want to borrow and the amount of your deposit.

Lets say you have $25,000 but want to spend build a new house which will be worth $500,000.

You will end up paying around an extra $17,500.

Typically this is added to the amount you borrow.

If you want to calculate the amount there is a useful calculator at www.genworth.com.au

Should You Pay?

As you can see from the above example the LMI can be a considerable amount. Should you pay it? or save up a bigger deposit? . . . . well it really depends on a couple of things:

Your Current Accommodation If you are living with parents or in a house you own it can be worth saving more. If you are paying rent it may be worth taking on the LMI (assume you are paying $400/week the LMI in the above case is equivalent to 44 weeks rent)
Inflation In the above case the LMI is around 3.5% of the cost of the house and land. In a time of rapidly rising land and costs there can be an advantage in jumping in a bit earlier.

I’m not suggesting you jump in with the sort of small deposit some builders suggest. . . . but just think carefully

It might be worth paying LMI rather than waiting years to save 20%.

Hints

It’s worth getting ‘Financially Fit‘ which means having a bigger deposit
LMI is normally stepped in bands, so it it can make a worthwhile difference to be below a percentage band. (having a 10,1% deposit can be quite a bit cheaper than a 9.9% deposit)
Make sure you are happy with your lender for the long term. LMI is not transferable! Changing lenders, if you still owe more than 80%, can be expensive

See Finance for Similar Posts

Cash Jobs

Whether Owner Building, or just having some work done on your new house after handover, you may need to engage tradies to do work.

One question that frequently comes up is “Do you want the Cash Price? or do you want an Invoice?”

Before you go for the discount here are some things to consider:

If there is no evidence of a ‘Contract’ there will be no ‘Warranty’. How do you take legal action if there is a problem?
If the tradie is willing to do an illegal transaction how sure are you that the work will be done legally and to the correct specification?
Electricians and Plumbers should be giving you a Certificate of Compliance. how are you going to get one for an ‘Under the Counter’ job?
Is the tradie also ‘forgetting’ to pay his insurance premiums. If he injures himself, or others, you could find yourself liable.
By agreeing to pay cash you are conspiring in tax fraud.
If the property is an investment property you won’t be able to claim the cost as a deductible expense.
Tradies saving on tax means us non-tradies have to pay more tax.
The tradie is saving on Income Tax and GST which could add up to 40% of the total cost but probably only offers you 10-15% for cash.

As far as I am concerned I would rather have all the paperwork covered and pay a formal invoice. . . . How about you?

See Choosing a Builder for more posts

Onsite Stormwater Dention – Why

If you want to redevelop or subdivide an existing urban house block, you might find that a planning condition is that you will need to provide On-site Stormwater Detention (OSD).

You may also find it is a condition on individual blocks on smaller subdivisions.

Why Is Onsite Stormwater Detention Needed?

Before development of towns and cities a large proportion of the rain that fell in an area soaked into the ground or flowed slowly across the land to a creek or river. When areas started to be developed two things happened:

More and more of the land was built on, or paved, which meant rain was unable to soak into this ground.
Stormwater drains were built to carry the rainwater quickly away from the houses to be discharged into streams and creeks.

Initially while Australia had a small population this didn’t cause too many problems.

Since the mid 1950’s and the rapid growth in population more and more land has been built on.

The result has been more and more water has been discharged surface water drainage systems causing overloading of the piped systems and flooding of the rivers.

In order to try and reduce flooding Planning Authorities are attempting to reduce rainwater flows from developments to a flows similar to an undeveloped site.

OSD On Large Subdivisions

If you buy a block on a large subdivision it is unlikely that you will be asked to provide OSD on your Block. This is because large developers as a condition of the overall development have to provide Stormwater Detention Storage for the whole development.

The way they usually do this is by making much of the open space they also have to provide as Ponds, Lakes or Wetlands, which can fill up during periods of rain and then slowly empty. (Now you know why so many developments have a reference to Water in their name)