When building a home, when do you pay?

Building a home marks a significant milestone in anyone's life and amidst the excitement of planning your new home build, there's the practical aspect of finances to consider.

Unlike purchasing an already existing home, where your mortgage covers most of the purchase price, which is paid to the seller after the transaction is complete. When you build a home, the lender doesn't make a single payment upfront because there's nothing to pay for yet. Therefore one of the most common questions that we hear is, "When do I pay?"

In this article, we will break down the building and payment schedule for a design and build project, so you know what to expect and can plan your budget accordingly with your mortgage advisor or lending provider.

Payment Timeline

Before we dive into the payment schedule, it’s important to understand the construction timeline. Building a home is a complex process that involves multiple stages, and each stage has its own timeline. The overall timeline for building a home can vary depending on factors such as the size of the home and its complexity. External factors can also come into play, including weather and council delays. Typically, the construction timeline for a new home can range from 6 months to a year and it is important to keep in mind that delays can happen. So it’s best to have some flexibility in your timeline.

Stage 1: Pre-Construction

This is the start of the journey and begins like most good things, with a conversation. After an initial site visit and thorough discussion about your vision, we present you with a Preliminary Build Agreement (PBA). This agreement marks the starting point of our collaboration and outlines the fees to complete this stage. 

It is important to note that a PBA will not lock you into a build contract. This is where we engage with professionals such as surveyors and geotechnical experts to assess the site's suitability. Simultaneously, our design team works closely with you to develop a concept design and refine it based on your must-have features. This stage is crucial as it sets the foundation for the entire project.

As this is the first payment you make, this stage is typically broken up into two to four phases (depending on complexity of the build) and varies in price. 

An example of the phases within this stage are:

Phase 1 - Preliminary investigation, consultation and Concept design

Phase 2 - Developed architectural design

Phase 3 - Construction drawings for building consent

Stage 2: Build Contract

Once all the investigation work has been done, and you have a clear outline of the build and selections. A build contract is presented, this build contract serves as the blueprint of your construction journey, outlining the overall cost of the build based on the selections and specifications that were chosen during the initial stages. Alongside signing the contract, you'll also be required to submit a deposit. The deposit amount varies on the build, and the company presents the build contract. At Location Homes, this is around $30,000 but is subject to vary. 

Stage 3: The Build 

Once the build contract is signed and the deposit is paid, construction begins. The payment schedule during this stage typically operates on a progress payment system, meaning payments are made at various key milestones throughout the construction process. This method ensures that the builder has sufficient funds to continue the work while providing you with checkpoints to assess the progress.

Progress payments are generally tied to significant phases of construction such as:

• Foundation Completion
• Frame erection
• Roof and exterior wall completion
• Installation of mechanical systems like plumbing and electrical
• Interior fittings and finishes

Each of these milestones will require a sign-off by a certified inspector, ensuring that the construction meets all local building standards and regulations. Payments are typically structured as a percentage of the total cost and are detailed in the build contract. For instance, you might pay 10% of the total cost at the completion of the foundation, 15% after the framing, and so forth.

This stage is critical as it often involves the bulk of the construction work and expenditure. Regular site visits and meetings with the builder are advisable to monitor progress and to address any concerns that may arise. It is also a good period to verify that all building materials and workmanship align with the contract specifications.

Stage 4: Completion and Final Settlement

The completion stage marks the culmination of the building process. This final stage involves a thorough walkthrough of the home to identify any issues or defects that need addressing before the final payment is made. This is known as the pre-handover inspection. It is crucial to be meticulous during this inspection and ensure that everything is completed to your satisfaction and in accordance with the contract specifications.

Once any final adjustments or corrections have been made, the final payment is due. This is often termed the "settlement" or "balance" payment and represents the remainder of the contract price. Before making this payment, it's essential to ensure that:

• All work is completed to the agreed-upon standards.
• All necessary certificates of occupancy and compliance have been issued by the relevant authorities.
• You have received all warranties and manuals for installed systems and appliances

After the final payment, keys are handed over, and you are now the owner of a new home. It's a good idea to have a post-settlement plan in place for moving in and setting up your home, including the transfer of utilities and updating your address for all relevant services and subscriptions.

By understanding and preparing for these payment stages, you can manage your finances more effectively and ensure a smoother construction process for your new home. Always maintain open communication with your builder and consult with your mortgage advisor to keep your budget and payments on track throughout the journey.

At Location Homes, we understand the importance of transparency and clarity when it comes to payments throughout the building process. If you would like to talk to a member of our team to discuss your budget or if you would like help with your loan application, please don't hesitate to reach out. Contact our trusted team today.