Building a Home

Building a home is a major project, which can be hugely satisfying and also very stressful!

Let me remove some of the stress by arranging the most suitable finance package for your project.

Contact me before you buy your section, so we can get things set up correctly from the outset.

In this section, read about how a building loan works, along with some tips on what to look for in a section, and what the process is to obtain finance for a build.

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“Just wanted to say you were so helpful to us. It was awesome to know that we had someone we could rely on when we were having all that trouble with the first property and you were so prompt with everything we asked of you (and that was a lot!). Thanks heaps Sonya, we appreciated everything you did for us and it would be so nice if people got that kind of service from everyone they dealt with.”

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How the Building Loan Works

You need to be aware of the need to stay within your budget and that building often takes longer (and costs more) to complete than you initially expect. It is important to factor in the cost of rent while paying interest on your construction loan – this alone can cause some stress, particularly if you experience any delays in the completion date.

When borrowing to buy a section and build a house, your deposit will be used for the section purchase, and the remaining funds needed will be determined by a registered valuation of the building plans.

The bank will generally lend 75-80% of the projected end value of your house and section, as confirmed in the registered valuation. The loan funds will be released in progress payments during different stages of completion.  Your build contract will contain a payment schedule, which sets out when progress  payments will be made under the terms of the contract.

For example, the first progress payment is usually made once foundations and floorings are in place, the second when the roof, external cladding, doors and windows are in place (referred to as ‘lock-up’ stage) and the final payment is made once the internal fit-out is complete, e.g. carpets, electrical etc.

A revolving credit home loan can be a good option for a building project. Also known as a “flexi” loan, it is much like an overdraft, which allows you to draw down funds as and when you need them. You only pay interest on what you have drawn down at any time, which provides ideal flexibility in this situation. Once you have drawn down all funds and completed your house project, I can help you decide on your final loan structure.

To have your finance approved for a house build, there are some additional items needed in addition to the normal paper-work:-

  • A registered valuation of the land and projected end value of the home when complete
  • A fixed price* building contract from a registered builder
  • Copy of relevant building consents
  • Copy of all-risk insurance policy (unless provided for in the building contract).

I will co-ordinate all the above items and present them to the lender at the relevant time.

*Important note – If you are considering a labour-only contract with a builder instead of a fixed price contract, we need to run this idea past the bank early because some banks will lend you a lower overall percentage of the project. This is due to the high risk that your project might run over budget if there is no fixed price contract in place.

  • Sun and view – ensure these can’t be lost by future building in the area.
  • Slope – a steep site may add significantly to your overall costs due to the need to excavate/retain.
  • Drainage.
  • Is it an appropriate size?
  • What services are provided to the section, e.g. power, gas, sewer connection
  • Residential zoning and other caveats which may stipulate the size and type of dwelling you can build on the section.
  • Access to the section.

Once you have your finance pre-approved and have found a suitable section, the next steps in the building process are usually:-

  • Choose who will design your home, e.g. an architect or draughtsperson, or a design and build company
  • Prepare building plans and choose materials, fittings and fixtures
  • Choose a builder
  • Review final costs (including all items such as carpet, drapes and landscaping)
  • Review and sign a building contract (ensure you have the contract reviewed by your solicitor before you sign). Lenders prefer a fixed price building contract to include all items, and to guarantee no over-runs. Apply for relevant consents from the local council
  • Building starts.

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