Whenever we have to make key decisions around our lifestyle, career or choices affecting our business, we usually have a plan and then follow it through. The same goes for one of the biggest financial commitments – buying a property.

So, when one of the choices around purchasing a dwelling is buying “off the plan” this may seem to be a little left of centre – but once you know exactly what this is, in terms of price and location, it can provide better value for your money.

What does buying “off the plan” mean?

It is about signing a contract to buy a property that has not yet been built (there is a statutory 10 business days cooling off period for this type of contract). This is before the property title has been established and building works (not even ground works) has begun. The contract entered into can include the land safe, along with house and land packages and set types of property design known as strata property. What may be on show are built show homes, one of each design that is available to be purchased next to the vacant land area on which these homes are going to be built. In this way, you would get to visit and look round one of these designs prior to booking an appointment with the best home loan brokers in Melbourne.

What are the positives of buying “off the plan”?

These do depend on the developer, so it is important to make sure if going down this route and looking at a few locations, you get the full sales information on all the house and land packages you are interested in. Some developers may offer an “early bird” discount if you commit early in the process, often even before the building work starts.

If you are not wanting to move in straightaway, then it does give you more time to save up for mortgage repayments while you have a dwelling that has been secured. By the time you have moved in, depending on location and other factors, the value of your home might even have increased while you have committed finances to the property at a lower value. It can take between 12 months or more before you can move in or sometimes less, but if you are not in a hurry for a larger property with more outside space then it is a good option to consider.

There could also be a benefit to making your deposit work harder for you if you are able to put it into a trust deposit account until after the dwelling is completed. This does depend on the developer but if you are able to put down a deposit bond in an interest earning account to secure the build, then every little bit helps.

First homeowners looking to buy off the plan can be potentially eligible for government grants as well as state concessions. You will need to make sure that you check this out online but the First Home Owner Grant or FHOG introduced back in July 2000 offers a one-off grant to eligible first homeowners and this includes buying “off the plan”. The Government also introduced a 2021 First Home Loan Deposit scheme which does set out eligibility criteria but again includes buying “off the plan”, with a greatly reduced deposit for those buying their first home. Some of the deposits can be reduced down to around 5%, which makes a big difference in savings.

What are the downsides to buying “off the plan”?

The main area to consider is the time delay because there are a number of things that can happen from time of signing the contract to finally being handed the keys of the property. The housing market can change, and property values fluctuate, or your personal financial circumstances could alter so it affects the pre-loan approval amount. In a worst-case scenario, the builder could go bankrupt, however, you need to do your homework and check out other construction projects undertaken by the company as well as ensuring that they are in good financial health by checking out their published company accounts.

If you have not been able to see the dwelling before it is built, it may not meet the standard you were expecting to see. Plus, if the building work took longer than expected, you may have to pay for temporary accommodation along with storage costs of furniture due to the delay. Provided you are aware of these risks, then you can factor in some contingency planning to tide you over building work delays and do your homework on the construction firm in order to reap the rewards buying “off the plan” brings.

Is financing buying “off the plan” the same as a regular mortgage?

This is where it pays dividends to sit down and discuss your options with someone familiar with this form of mortgaging, such as your home loan broker in Melbourne. The home loan process for buying “off the plan” is different than the usual mortgage packages. You will need to have a deposit ready of around 10% of the price of the contract in the form of either a cash deposit or a bank guarantee. What is the same as if you were buying a property already built, is that you get your home loan on the date of the settlement, but remember that in terms of “off the plan” purchases, this could take months or a year or so because of the development process.

You must speak to your broker who can help with getting pre-approval on a home loan, so you are fully aware of what your repayments are going to be and what you are allowed to borrow. Your home loan broker can also meet with you during the construction period to review your financial position and provide you with expert guidance before making this important decision.

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