Lending Criteria to Build
Many go to their bank and seek a loan approval, not fully aware that an approval to purchase may not be interchangeable with an offer to build (most banks will approve a higher loan amount to purchase used house than to build a new home).
The biggest reason is that building almost always has an “overlap” where must qualify for the new mortgage and pay rent. This can limit or even prevent you from qualifying to build. NewBuild overcomes this issue, allowing you to secure a loan offer at the same level – whether you are buying used, or building.
If you want to build for a long term owner-occupied or long term investment properties, then our lender is Sovereign Home Loans (part of the ASB Group) will work for you. If you need short term funding for specs, or other reasons, then Newbuild loan through Crown Money will likely be you best option.
Why are you More Likely to be Approved to Build with NewBuild?
Our lenders are more willing to approve your construction loan when it is fully managed through NewBuild because much of the risk to the lender and purchaser is properly managed. We manage the contract to ensure it aligns with the lenders requirements for deposit, the progress claims, guarantee, and appropriate insurances on the property while you are building.
Cross Collateralising
Many understand that building is a fantastic way to accumulate capital – not just income – in preparation for retirement. NewBuild offers advise of structures and strategies around building for investment.
The Approval Process
In nearly all instances, we recommend a two step approval process. This useful so you know well in advance just how much you can afford:
1. Pre-approval (also called credit approval, or conditional approval). This is where the lender determines from your application how much money you can qualify based on your income, your deposit, your credit, and other factors. It’s like knowing how big your sand pit will be before you buy the toys.
2. Security approval That usually takes a little longer and is the process of finding a section, securing a build contract and getting the proposed property valued. This can take several months. But it’s important that while you go through this process, you and your builder understand that your pre-approval are usually only valid for 90 days. So if you take longer to get the security approval and settle, you will likely need to renew and update your loan offer.
This sounds simple enough, but if you are starting to commit unconditionally to your land purchase and to your builder, and your offer expires, you run the risk of the lenders guidelines having changed, interest rates changing, or even your personal circumstances changing – all affecting a renewed loan offer.
Lastly, credit criteria are subject to change, so make sure as you progress through to an unconditional approval that your loan conditions are fully satisfied. Examples of things to watch for may included ensuring your builder can provide the third party guarantee, is willing to accept the conditions of progress payments, and even accepts the deposit criteria.
How long can you have a Construction Loan?
Your construction loan can last upwards of 12 months. It is important to note that if you have interest capitalised within your NewBuild loan, that this will stop at 12 months, and you will be required to make monthly interest payments until your home is completed.