Q: I have a 5% deposit which I can prove is saved, but I need more deposit, can I still apply?
A: Current credit criteria may permit you to have a deposit as low as 5% (land and build) if you finance directly with a NewBuild advisor, or 15% with a mortgage broker. You must have a minimum 5% of genuinely saved funds, and any additional deposit may come from a gift, personal or family loan or other source, as long as that is disclosed on your loan application.
Q: Can I only partially finish the home?
A: The simple answer is no. The value in your home comes in the completing of your home. The bank also wants to see a Code Compliance Certificate, AND a valuers Completion Certificate, so if you do not complete your home fully, you are likely to run in to difficulties with your bank. If you have some items you want to complete yourself, that’s normally allowable (see Owners Care).
Q: How do I know when my home is completed to satisfy my bank loan condition?
A: Your bank needs a Code Compliance Certificate and a valuers Completion Certificate as conditions of the loan. You need to make sure you have sufficient funds to fully complete your home to these standards, and your builder must be made aware that final payment to them may depend on your completion.
Q: What if I want to build a kitset home or re-locatable home?
A: These are really hard to finance because the supplier/provider wants full payment before delivery, and banks pay only on security in place. So unless you have a very large deposit to pay the large upfront payments required, these types of homes are harder to finance. If your supplier will accept progress payments on installation, both Kitsets and relocatables are possible.
Additionally, the house, either re-locatable or kitset, is not part of a full contract to complete the home to a level satisfactory to the lender. Neither kitset nor re-locatable purchases include a contract including items such as the land preparation, labour, connection to services or council required inspections and code of compliance, making them unacceptable to the lender - unless you can secure the completed project as part of your kitset or re-locatable purchase.
Q: What if I want to fix part of my construction loan?
A: You can fix your section loan and leave it outside your construction loan. If you do this, you must make mortgage repayments on this portion of the loan. You may also split your construction loan and fix the drawn portion during the build under certain cirumstances. If the interest rates are moving upwards and you want to protect your rate, it may be possible to fix a portion of your construction loan.
Q: Do I have to capitalise interest (have the interest costs built in to the loan)?
A: Most elect to have the convenience of capitalising interest through the build, but if you have sufficient deposit and can service your current rent and the construction loan, you may elect to pay the interest as you go. Many feel that compounding interest until completion is expensive, but you are only compounding the unpaid interest. It usually adds several hundred dollars over the life of your construction loan.
Q: Do I always need a Third Party Guarantee?
A: No matter who you build with there is always just a little more risk involved with building. We believe you should always build with a company that can offer a thrid party guarantee (through Registered Master Builders or Certified Builders). If you check our preferred builders - they all offer this as part of their service to you.
If your total deposit is less than 20% a third party guarantee is mandatory, and if your builder is a Registered Master Builder, that guarantee must be upgraded to their "Premium" guarantee, or the "Built-in" guarantee offered by Certified Builders
Q: I already own the section and have already spent money on improvements (such as driveway, water tanks etc). Can I use this as equity?
A: Most banks will not count any improvement value to your section towards your deposit. Newbuild will, as long as that value reflects in the valuation. You may not be credited your actual costs, so you do run the risk of getting less credit towards your deposit than you may have by including these items within your build.
Q: I hear that building can be frustrating and risky. Should I really consider building?
A: Building can have huge personal and financial rewards, but yes, you do need to make sure you minimise the risks involved with building. There are two ways to ensure you improve your odds of a successful build:
1. Get your finance sorted from the start, and make sure your bank fully understands the nuances of construction lending. Make sure that your agreement with your bank does not conflict with your contract with the builder - most do - and you will be the one who has to sort out the conflict.
2. Make sure you have chosen a builder who can deliver you your dream, on budget, on quality and on time. You should develop a trusting relationship with your builder, and if you choose a builder primarily on price, you are likely to get what you paid for.
Mistakes are likely to happen during your build, it’s the nature of putting so many pieces together - there are so many suppliers and contractors (it takes around 22,000 components to build a home). But minimizing risk is also about communication; how your builder listens to you and works through the entire process until you are satisfied. Make sure you have good communication with your builder and your frustrations will be reduced.
We see many builds go wrong because of mis-pricing. When you see PC sums in your build contract, ask yourself if these may be "BS" sums (I will leave that to your imagination).
We often remind our clients that you are guaranteed to get an honest builder - sometimes at the start, and sometimes at the end. You want your builder to be honest with you when you sign your contract.