What are the costs to build

Orange Homes 1

We will provide a summary of customary costs that you might expect to pay for your build.

Valuation and a Completion Certificate

While other lenders may require multiple progress valuations, NewBuild only needs to establish the "as completed" value of your proposed build by way of a valuation.  The valuer will visit your building site with your plans and specifications, but their job is to determine, based on comparable sales, what the house might be worth if you were to sell it, not what it might cost you to build it.  In most instances, building produces much more value than what it may cost you.

You will not be required on completion to do a final valuation, only a valuer's completion certificate which simply certified to the lender that the house has been completed according to the original plans and specifications they were provided for the first valuation.

Because of the low equity margin, more clients choose to switch from a completion certificate and pay a little extra (optional) to see if their home has increased in value, and they can then apply to have the low equity margin reduced or removed.

Legal costs

Typical cost to settle a construction loan may range from $1,200 - $2,000.  But often, additional legal advice is sought to review a build contract or sale and purchase agreement etc. or even advice around the entire process.  You should seek guidance around your legal obligations, but you should also ask in advance what cost you might expect for the level of advice you are seeking as we have found some clients incur legal costs in excess of $8,000 because they utilize their lawyer throughout the process and are not aware of the growing costs.

As an aside, most lawyers are highly capable, but occasionally we find lawyers who don't understand construction lending and they will often try to convince their clients not to build a new home.  We agree there are elements of risk in building, but if you don't cut corners, if you seek solid advice and make good decisions, this can be one of the most [financially] rewarding experiences of your life.

Interest costs

No matter what type of construction loan you enter into (turn-key or progress payment) there will be interest costs.  For turn key this cost will be included (hidden) within the builder's sale price. For a progress payment loan the interest is payable for progress payments.  Interest is only payable on the portion of the loan as it is advanced and not on the entire loan amount. 

NewBuild manages the interest payments by including an "Interest Reserve" to pay the capitalized costs throughout the build. While many clients will continue to make some or all interest payments, our loan means it is not mandatory, so clients are not forced to pay their rent and a construction loan at the same time.

Capitalizing the loan means that the unpaid repayments result in a compounding affect which may add up to an average $100-200 (depending on your loan size) in extra compounding interest costs, versus paying interest from your own cash-flow as you go.

Inspections

Instead of requiring multiple progress valuations (or worse, paying off builder's invoice sight-unseen) NewBuild sets aside within the loan $500 for inspection reserves.  This will contribute to costs to have your home inspected before any payments are made to your builder.  Inspection costs may average from $100 to $300 (and sometimes higher) depending on the location of your build or charge from the assigned inspector.

NewBuild Fee

NewBuild is paid primarily by the lender, but the remuneration to manage a build is not included, so our normal charge is $1,000. We will guide you from the loan application to the hand over of your new home, and beyond. We estimate that the NewBuild fee and inspection fees combined equal about the same or less than what you would pay just for a progress payment loan elsewhere, but with NewBuild you also get our full end to end "Financial Project Management" service.

Your Financial Commitment and Obligations

There are laws surrounding the purpose/nature of your project.  For example, if a home is sold within the first 24 months the IRD is required to seek income tax (essentially a mandatory capitals gains tax) and if your intent (intent is determined by IRD) was to create value and sell speculatively, then you may also incur GST and penalties.  You should seek sound legal and accounting advice.  NewBuild only offers loans to clients who intend to be owner occupiers or investors for 24 months or longer.  You should read our disclosure statement to understand any additional costs you may incur if your loan is discharged within the first  2 years.