Devine Homes have recently advertised they will double your deposit up to $10,000 to help get buyers into their homes. While this seems to be a great offer, closer attention needs to be paid as does all incentives or rebates offered by developers or builders.
This article will discuss how the finance process impacts such rebates and offers and the issues that arise.
When you read the fine print, a lot of the time the rebate or in this case with Devine Homes, the deposit offer is only given to you after completion of the home. This means it is not given to you to be able to use with your existing deposit. This means banks will not take a rebate, deposit offer or incentive into account to contribute towards the house and land package.
It has become common for valuers to reduce their valuation of the house and land package by a rebate or incentive that is offered by the developer. For example a furniture package included in a sale, $5,000 in Harvey Norman vouchers if you buy land today or builder offers $10,000 cash back. These are usually written into your contract as a special condition or as an annexure. Valuers take the view that if a developer or builder is providing such an incentive then the true sale price of the property in question is the contract price minus the rebate. Effectively the bank then lends off the lower valuation figure which means you wouldn’t actually receive much of a benefit from the rebate or deposit offer towards in respect to finance.
You may find yourself needing more deposit than you needed before. But how can this be you ask? Remember the last issue where a valuer could possible reduce the valuation. Say the package price is $350,000 but the valuer reduces the valuation by the deposit offer to $340,000. If you have the minimum deposit saved of 5% of the $350,000 it means you have available $17,500. But what about the $10,000 shortfall in the valuation amount? the bank would only lend 95% of $340,000 which is $323,000. Deduct this away from the package price and its leaves a total contribution of $27,000. You would need to find that extra $10,000 in the case of Devine Homes or any other developer that provided the incentive after completion as the banks require you to contribute your funds at the start, rather than at the end of construction. Other incentives that are provided at land purchases don’t usually have this issue as the rebate is usually adjusted off the sale price so both cancel each other out.
So far we have looked at the issues associated with such incentives from developers such as Devine but lets look at the positives.
If you decide to put the $10,000 back in the loan after completion or its a rebate or incentive at land settlement then your loan amount will be less and a flow on effect from this is lower interest charges. This is in comparison with using a different builder with the same type of package and design but without a rebate.
Potentially a better deal than what was previously out in the market. However, we recommend that you still look at other options to conduct your own research to ascertain whether you believe the home is good value.
In conclusion, its important you take the above into account when looking at rebates or other such incentives to purchase. In most cases it doesn’t help contribute towards your deposit so it should not be the main reason for choosing that builder or development. Of course if everything stacks up and you are happy with the developer, its a great little bonus!
Want to discuss further or have more questions? You can contact us below or read more of our insightful articles:
- Construction Loans – how they work
- Construction Loan Finance Options
- Land Loans
- Construction FAQ
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