21 May 2021

What Not To Do When Building a New Home If You Have a Small Deposit

Any time a home loan applicant puts down a smaller down payment, the loan becomes larger. A total home loan is considered 100%. The expected deposit amount is 20%. If it’s less than 20%, the loan amount increases by the corresponding percentage. It also increases the amount that the applicant will pay in interest. 

To build your own home, Mortgage House offers a construction loan. If you’re an owner-builder (maximum LVR is 80% because mortgage Insurance is not available), we offer an owner-builder loan, too. Both require a 20% deposit. Otherwise, you’ll incur the lender’s insurance fee. If you still opt for the small to no deposit construction loan, we’ll work with your financial situation. 

Construction loans offer several benefits. The most important benefit is that you only pay back the amount you actually use. As you put your construction plans together, you’ll have an estimate of the costs. Things can go your way, and you may not need the entire amount. This is good news.

With a small deposit construction loan, it’s important to only use the funds that are actually needed. By over-borrowing, you put yourself in a precarious financial situation since you’re incurring a higher interest rate and the lender’s insurance fee.

Warning: We recommend that you do not buy land only & build later if you have a small deposit. Best to combine the land purchase with a construction contract otherwise you risk the vacant land value dropping bringing your dream undone!

Small Deposit Construction Loan Conclusion

Building a home is a wonderful venture. Mortgage House funds these projects through construction loans and owner-builder loans. We also offer small deposit options. For more information, contact our lending specialists. After reviewing your application, our team offers you a set of possible loan terms. In the meantime, test our mortgage calculator.

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