WE SPECIALISE IN CONSTRUCTION LOANS.
If you are considering a new build, major renovation or section purchase, you need the right advice from the beginning.
Build contracts can vary quite considerably, therefore, not all construction loans are the same and we can advise which bank or lender is right for you and your project.
There is additional information required for a construction loan compared to a standard home loan:
Registered Valuations (assessing the end value based on your plans to build)
Builder’s Risk Insurance (cover for the building throughout the construction period, which will be replaced by standard home insurance once the build is complete)
Code of Compliance
Signed Fixed Price Contract
We always recommend that you provide us with a copy of the draft build contract, so we can have the lender approve of the contract before you sign. We also recommend that you provide a copy of the draft build contract to your conveyancing professional/solicitor to provide any legal advice before you sign.
LAND AND BUILD PACKAGE
A land and build package is where a building firm is selling the purchaser a section, and they are also providing a fixed price build contract to complete the construction.
In the fixed price contract there will be a progress payment schedule that will state when funds are required to be paid throughout the build. Sometimes, the building firm may require an upfront payment to release the plans or if plans are required to be amended (this is over and above the fixed price contract).
Upon going unconditional, the purchaser is usually required to pay a deposit on the section (usually 10% of the land purchase price) and a deposit on the fixed price contract (can vary on the building firm used). Often this is the time that the building consent will be applied for by the building firm.
This type of build requires progress payments to be made to the building firm upon reaching certain milestones throughout the construction. Depending on the lender, they will consider providing up to 80% of the land value upon settlement of the section with the balance of the loan to be progressively drawn down upon receipt of invoices that are inline with the fixed price contract progress payment schedule.
LAND AND BUILD TURN KEY CONSTRUCTION
A turn key build requires the purchaser to pay an agreed deposit (usually 5-10%) with the full balance required to be paid within a certain timeframe of the Code of Compliance being issued.
This type of build minimises the risk of the purchaser and lender as the loan will only settle once the build is complete. However, this can sometimes remove the purchaser’s ability to make any variations as the builder takes full control of the build process.
LABOUR ONLY CONTRACT
This type of build requires project management to be either by yourself or an outsourced construction project manager. A labour only contract only covers the builder’s labour (how many hours they work to complete the build). You will also require costings for all materials and quotes from all other subcontractors.
There is more chance of cost overruns with this type of build and therefore lenders will usually apply limitations and more conditions to lending of this nature.
KITSET / RELOCATABLE / MODULAR HOMES
When purchasing a kitset home, you would usually require a labour only contract with a builder to put the kitset together onsite. This can also be the case when purchasing a relocatable or modular home as you may require a builder to complete the piles and connect the dwelling onsite.
If you are purchasing a kitset, relocatable or modular home, you will usually require a substantially higher deposit than purchasing an existing home. The reason for this is that the seller of the kitset/relocatable home will usually require a minimum of 50%-67% deposit to be paid before any improvements are onsite; and for a modular home which is built entirely offsite it can mean a higher level of payment is required before delivery to site.
Lenders will lend against the land and any fixed improvements to the land. Therefore, they provide an initial drawdown based on a percentage of the land value only, with further funds being released upon confirmation of the dwelling/improvements value onsite.
If a borrower doesn’t have sufficient funds to cover the higher level of upfront costs; it can sometimes be an option to use a guarantor for additional security for the lender. This can be a parent or family member with good equity in their property.
You can then borrow the money required to cover the higher upfront costs, allowing you to get to the stage where the dwelling is on site and sufficient value present to meet the lender’s security requirements. You can then apply to have the guarantee released.
FIXED PRICE CONTRACT
If you already own your section or are looking to complete a major renovation on your current property you would usually receive an estimate from a building firm initially which would lead to a fixed price contract.
Like a land and build package, most fixed price contracts will require a deposit to be paid with the balance to be paid progressively, upon reaching certain milestones throughout the construction.
Construction lending can be complex, and it makes a world of difference if you have a mortgage adviser who knows what is involved from the outset. When building, there are many decisions to make like choosing paint colours, flooring options and window furnishings.
Let Connect Me Mortgages take some stress away by getting it sorted through us.