Building a house

The cost of building a home depends on whether you’re:

• buying a land and home package
• demolishing an existing property and building a new property
• buying a block of land to build on
• building on land you already own.

In addition, there are other costs associated with buying property that you would need to consider, including:

• Government charges, such as stamp duty, title transfer fees and registration fees
• Legal fees for all the paperwork related to buying a property
• Financing costs, such as loan application or establishment fees and lenders mortgage insurance (which, depending on the lender, is generally required if you plan to borrow more than 80% of the property’s value)
• Home and contents insurance.

Find out more about these unexpected costs of buying property.

Stamp duty or land transfer duty is the tax that you pay when you transfer a property to your name. The amount of stamp duty depends on which state or territory you’re in and the property value (and any concessions, if available to you).

When you buy a house, generally you pay stamp duty based on the value of both the land and the house.

When you build a house, generally you only pay stamp duty based on the value of the land you’re buying. This means you don’t then have to pay stamp duty on the house you build, which could be a substantial saving.

Find out more about stamp duty and how it could affect you.

Stamp duty can be complicated, so be sure to check the specific rules for your state and territory.

There’s no clear-cut answer to whether building a house will save more money than buying a house. It’s just a matter of weighing up the pros and cons and deciding what would work best for you.

When you buy an established house, usually what you see is what you get. A building inspection and bank valuation could help you avoid any unexpected issues and it’s clear what you’re buying.

Building a new house isn’t as straightforward. First, it might mean continuing to rent or pay an existing mortgage while your house is being built, which is an added expense. Second, building brings the risks of scope creep, budget blowouts, difficulties with builders, tradespeople and suppliers, and delays caused by permits and weather.

However, when you build, generally you only pay stamp duty on the land, whereas when you buy, generally you pay stamp duty on both land and house. There may also be grants or concessions available to you if you’re a first home owner, and that could lead to substantial savings.

Find out more about buying vs building a home.

There are a number of factors that impact the cost of building a house.

1. Land costs

Your house needs to be built on a block of land. Where the land is and how big the plot is will affect how much it costs. Don’t forget, if you’re buying a block of land rather than rebuilding on an existing block you own, you’ll generally still need to pay stamp duty on the land, as well as any transfer fees.

2. Building costs

The size of the house and the quality of the materials will affect the cost of the build. Whether you choose a project home or a custom build will also make a difference to the cost.

3. Site costs

Site costs are the costs involved in preparing your land for construction and are usually charged by your builder on top of the build price. For example, if the soil quality on your land makes it difficult to work with, the land has a slope or it’s in a flood or bushfire prone area, site costs could end up costing you a significant amount of money.

Find out about some of the unexpected costs of buying a home that could also apply when you are building a home.

The key to staying within budget when building a house is to work out all the details beforehand and stick to the plan. Making changes during the build and adding extras could see your budget spiral out of control.

Here are 3 items to keep an eye on, that could affect your budget.

1. Estimated v actual costs

Under some building contracts, you may have the flexibility to decide on the exact fixtures and fittings later. An estimated amount is added to the contract and depending on the items you decide to go with, you’ll end up paying more or less than the estimated amount.

The more items you have in your contract which are estimates only, the more your final build cost can vary. If you want more certainty about your costs, it’s a good idea to nail down the details you can and keep variable or estimated costs to a minimum.

2. Contract variations

Contract variations are changes you make to the contract after you sign it. If you make changes to your build, the costs may increase and you may be charged a variation fee on top of that. The fees are usually stated in your contract. If you want to keep costs down, avoid contract variations where you can (or, if you do want to make a variation, understand what it will cost you before giving the go ahead).

3. Provisional sums

There are some items that a builder cannot put a fixed price on before starting the build. Usually these items are estimated and listed as provisional sums. If there are unforeseen challenges on the site, such as large rocks that need to be cleared or needing to dig your deeper to set the foundations, you might need to pay more than the initial contract price. It’s a good idea to set aside additional money to allow for these unexpected situations (which can be expensive).

Find out about some of the unexpected costs of buying a home.

Consider talking to an ANZ home loan specialist and applying for pre-approval^disclaimer. With pre-approval, you’ll know how much you can borrow, which makes it easier to budget when you’re speaking with a builder or developer.

Before building a house, you should consider how you’re going to finance the build. There are two types of loans that could help you finance building a house.

1. Land loan

A land loan is a loan to buy an empty block of land. Most land loans require a higher deposit and have a higher interest rate than a regular home loan. Lenders usually expect you to buy land with the intention of building a property and there might be conditions that require you to build your house within a specific period.

2. Construction loan

If you’re building a home or doing major renovations, then a construction loan could be what you need. With a construction loan (and it depends on the lender), generally payments are released progressively during construction and you only pay interest on the amount that you’ve drawn down.

Find out more about ANZ's land and construction loans.

LVR stands for 'Loan to Value Ratio' and it's the amount you’re looking to borrow, calculated as a percentage of the value of the property you want to buy (as assessed by ANZ). For instance if you’re borrowing $400,000 to buy a $500,000 property, your LVR would be 80% (because $400,000 is 80% of $500,000).

LVR is important because it may affect your borrowing power. Generally, the lower the LVR the better, as it carries less risk for the lender. If your LVR is above 80% (that is, you're looking to borrow more than 80% of the value of the property you want to buy), you may need to pay Lenders Mortgage Insurance (LMI). This insurance protects the lender - ANZ, not you - if you default on your home loan and there’s a shortfall following the sale of the property. Generally speaking the higher your LVR, the more LMI will cost.

Learn more about ANZ LMI with our Key Fact Sheet (PDF 370kB) or read our article on Lenders Mortgage Insurance.

If you have money in an everyday banking account, you may choose to move it into an ANZ One offset account. You can link it to your ANZ Standard Variable loan or one-year ANZ Fixed loan to help you save on interest charges. The money you have in ANZ One will offset the amount you owe on your home loan, and you’ll only be charged interest on the difference.

A $10 servicing fee applies per month per offset account.

Find out more about offset accounts.

If you choose interest only, the minimum payment amount on your loan will be lower during the interest only period because you are not required to repay any of the loan principal. You will have to repay the principal down the track and so you may end up paying more over the life of your loan. There may be additional restrictions on the amount you can borrow or loan type you can select if you choose to pay interest only.

Choosing to repay principal and interest means that, with each repayment, you're paying off interest charges as well as some of the loan principal.

Learn more about payment types.

A comparison rate is designed to help you work out the total cost of a home loan by building the known costs like up-front and ongoing fees into that rate. It doesn’t include things like government charges, redraw fees or fee waivers. 

You can use comparison rates to help you compare the cost of different home loans with similar features. When deciding which home loan is right for you, it’s important to think about what features each home loan offers, and how much these matter to you. Keep in mind that you may not necessarily pay the comparison rate that is advertised for your loan type.  This is because, for example, you may not pay all the fees and charges which the comparison rate includes.