The difference between a One Part Contract and a Two Part Contract
When you want to buy a brand new property, that still needs to be built, you will be entering into either a One part contract or a Two part contract. You will know in advance which system is used by the developer.
Two Part Contract
- Usually used when House and Land Packages are purchased.
- A buyer will typically first sign a contract with the land developer, then a separate contract with the builder for the build of the house.
- You will have to settle on the land first, then progress payments are done during the building process of your new home.
- At certain stages of the building process, the builder will provide you with an invoice which you will need to forward to the lender. The lender will then pay the Progress payments as needed.
One Part Contract
- Usually used for Townhouse and Apartment purchases.
- Alternatively, when a builder owns the land and already built a house on it. Some builders do that to help the First Time Home Buyer who want to take advantage of the First Home Owners Grant and don’t want to wait until the building process is complete with a typical house and land package.
- Buyers sign a single contract with the developer, which covers both the land and building component.
- The deposit required is paid when the contract is signed and the balance of the purchase price is paid at settlement.
The Difference in Purchase Contracts
In regards to the Progress payment system for the two part contract, you will be notified in advance at which stages payment will be needed. You don’t have to stress about that. As soon as the builder provides you with an invoice, you forward it to the lender and payment will be done.
For the One Part contract, there will be NO Progress Payment System.
The buyer will need to pay the required deposit when signing the one part contract. This can be funded by either cash from savings or funded by a re-draw from existing equity.
The developer will fund all construction costs to complete the building.
Since there will be only two payments made – at the stage when the one part contract is signed and the balance at settlement stage.
The full mortgage of the buyer will commence charging interest only at settlement stage. Fortunately, the buyer will be able to either rent out the property, in which case, income will be generated to offset the interest repayments.
Alternatively, the Owner Occupier will be able to move in and enjoy living in the brand hew home.
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