The old saying: “the best laid plans of mice and men often go astray” is often true when it comes to building a new home. There are a number of inherent challenges you can face when building and top of that list is money. Nothing will stop your new home build faster than not having enough money.

Loan criteria vs builder’s invoicing system

Trying to avoid conflict between your bank’s loan criteria and your builder’s invoicing system can be stressful. Under the standard cost-to-complete method used by most clients and builders you will be asked to provide progress valuations (at considerable expense) to determine how much it would cost to complete your home. The bank never agrees to the terms of your build contract and can, at their discretion, stop making progress payments if they deem the value to be insufficient, or if you are not keeping up with your interest payments.

Valuation & actual cost price gap

A valuation may not reflect the actual costs incurred by the builder resulting in a miscalculation of costs to complete, i.e. is a concrete slab worth what you are paying for it, or is the value of the slab only evident on completion of the build? The lender may then fund 75-80% of the valuation figure, less their retention, which is often not enough to pay the balance owed to your builder. This will cause a substantial shortfall in payment to your builder with unnecessary delays, and has from time to time forced builders to stop the project altogether as they have insufficient funding to continue.

Lack of detail in contract

Another common pitfall is having too many items excluded from your contract. If you want to do some of the work yourself, i.e.. driveways, retaining walls, landscaping, etc., you must either hold back a portion of your deposit or find a way to include these costs when you arrange your finance.

Before you begin your new home build you should make sure the provisional cost (PC) sum is accurate and that your builder does not omit items that you thought were included. By doing this you will avoid any unpleasant surprises when the variation invoice comes dues.