You must have funds to purchase the kit outright OR have significant equity in your land. Otherwise, you cannot get lender approval to build a kit home.
Why getting approved can be tough!
A kit home is a standard house that’s partially built in sections in a factory, which can then be assembled on site by the owner or a registered builder.
This type of DIY home construction can save you a significant amount of time and money depending on what type of home you want and where you’re building.
We recommend that you only consider constructing a kit home if you’ve experience working in the construction industry or are hiring a builder to construct the kit for you. If you’re building the home yourself then please refer to our owner builder page.
Legally, the lender would only have security over something that is permanently attached to the land.
For this reason, when you buy the kit, it is not part of the land, so the lender has no security over it. Therefore, lenders want you to be able to afford the kit on your own.
The progress payments problem
The major problem encountered by people who’re buying a kit home is that most lenders don’t allow owner builder loans or will ask for you to pay for the kit up front using your own funds.
- Kit home manufacturers usually want to be paid in full before the kit leaves their factory.
- If you’re using a licensed builder to put the kit together then the banks may consider a construction loan for you.
- If you’re an owner builder then you’ll have restrictions on the amount you can borrow, typically at 75% of the land plus construction cost.
- Even with a contract builder, you must have enough funds to purchase the kit up front.
Some manufacturers can sell their kit in sections which can match the progress payment schedule used by most banks.
Because of these potential issues, it’s essential that you contact us to see whether you qualify for a loan.
When will my bank release funds?
We can help you release funds for your project if:
- You have enough funds or equity to pay for the kit yourself up front and are using a licensed builder. We can help you fund the construction of the home in regular progress payments. The bank will ask for you to pay for the kit but will release funds in progressive payments to the licensed builder that you’ve hired to construct the kit for you.
- You do NOT have enough funds to pay for the kit yourself up front and are using a licensed builder. We can help you fund your construction project only if you have payment terms with the kit home manufacturer that will allow you to pay them on the completion of the home. Alternatively, your builder may purchase the kit and include the cost of this into his progress payments from the bank.
- You’re not using a licensed builder. Please refer to our owner builder page.
How much can you borrow?
- Licensed builder: Up to 90% of the value of the land plus the cost of construction if you have a licensed builder.
- Low doc: Up to 80% of the value of the land plus the cost of construction if you have a licensed builder.
- Owner builders: Up to 75% or 80% of the value of the land plus the cost of construction. You must have additional funds as a contingency.
- Borrow more with a guarantor: You can borrow the full costs of land and construction if your parents can secure your mortgage with their property.
- Discounts: Competitive professional package and basic loan discounts are available.
- Please read about the ‘progress payment problem’ section above before contacting us.
Financing a kit home isn’t as simple as financing a normal construction project.
Make sure that you have enough funds for construction, so you don’t run out in the middle of construction.
At least a 30% – 40% deposit is required based on the total value of the land plus cost of construction. This can also include equity in your land.
If you have enough cash, then you can buy outright with the normal process.
If the property is complete, you can borrow up to 90% of the value in most cases. Often, people borrow from their family to build the home and then refinance when it’s complete and pay back their family.
Please call us on 1300 889 743 or complete our free assessment form to talk to a mortgage broker in our office for expert advice.
Why are the banks conservative?
Australian lenders treat kit homes very conservatively as they are worried that if they release funds to pay for the kit up front and something goes wrong with construction then they will be left with only the land as security, which may be worth less than the loan amount.
For this reason, they generally only release funds for the kit up front if you have significant equity in your land or will delay payment until the kit is “adding value to the land”. This is normally when the kit has been completed!
We can usually work around this if your kit home supplier can be paid in stages or if you’re using a licensed builder by including the kit in his construction contract.
Tips to help you finance and build your kit home
Follow these simple tips to avoid headaches down the track:
- Don’t run out of money: If you run out of money during construction then in most cases the banks won’t approve a loan increase for you. In other words, you’ll be in big trouble!
- Don’t change your plans: If your budget, plans, design or specifications change then most banks will reassess your application from the beginning. If you haven’t got a final budget completed or don’t have final council approved plans then apply for a pre-approval instead. Once you’re certain there will be no changes then you can apply for formal approval.
- Keep it simple: Australian banks don’t work well with “outside of the box” procedures for their loans. It’s often easier to make small changes to your process or to comply with bank procedures than it is to argue with the bank. If your situation is outside of the box then apply with a lender that can help you rather than trying to get your bank to assist you with something that is outside of their normal process or lending guidelines.
Apply for a kit home loan
Our mortgage brokers are experts in construction loans and know how to help you get your mortgage approved!
Please call us on 1300 889 743 or complete our free assessment form to talk to a mortgage broker in our office.
We can quickly work out if you qualify for a mortgage and then help you to apply with the most competitive bank.