Mortgages When Building a New Home

GETTING A MORTGAGE when building your newto pay out each progress payment. In some cases, a
homeprogress valuation may be required also. Here is an
When considering buying a house, you may look at theexample of a schedule of progress payments:
option of building a new one. This can be a greatCouncil Inspection Sign Off Required
option as new houses often come with building[1] Deposit 10% Initial building consent
guarantees, they do not require a large amount of[2] Foundations 10% Foundations and block work
maintenance and you can influence the finished design.[3] Floor, Roof & Framing 20% Drainage
This will ensure that your new house is exactly how[4] Lock up 25% Pre-Line Build
you want it. However, building comes with an element[5] Internal lining & doors 25% Insulation, pre-line
of risk, which is only overcome by preparation andplumbing, post-line
good management. It is important to be prepared[6] Completion 10% Code of Compliance
when applying for a construction loan.With most banks the final 5% - 10% will not be paid
CONSTRUCTION / BUILD LOANSuntil the Code of Compliance and confirmation from a
When applying for a mortgage to build your newRegistered Valuer that the property is complete are
home, for most banks, the maximum Lending Valuationreceived.
Ratio (LVR) is 80%. The following formula is used toTOP 10 POINTS
calculate the LVR for construction loans:[1] Make sure you work with a Registered Master
Loan Amount Required divided by (Land Value + CostBuilder who you trust
to Build)[2] Ensure you draw up a very clear building contract
FIXED PRICE CONTRACTS[3] Understand a Fixed Price Contract and what it
To assess the cost to build the property, the bank willmeans when you don't have one
need a copy of a Fixed Price Contract from a[4] Understand and ensure appropriate insurance
registered master builder, or a schedule of costs ifcover is in place
there is no Fixed Price Contract held. If no Fixed Price[5] Before you sign up for anything have your solicitor
Contract is held, some banks will only lend up to 60%lawyer check all documentation
LVR or make allowance for 15% cost overruns.[6] Use an experienced mortgage broker or financier
PROGRESS PAYMENTSwho understands construction/build loans
Once a bank has approved your mortgage it will then[7] Always make sure you can afford and have pre
draw the loan down in a series of progress payments.arranged a contingency fund... for the unexpected!
The first progress payment will be made once the[8] Measure, measure, measure - before you sign off
bank has received a copy of the building consent andon your final plans always double check that you will
confirmation of builders risk insurance, with the banksget what you are expecting in room size.
interest noted. A professional valuation is also required[9] Ask questions - building and financing a home can
at the outset. This is to be based on the proposedbe one of the most stressful things we can do so do
plans for the building and is to state the current valuenot hesitate at any point to ask questions if you are
of the land as well as the expected value of theunsure.
property when building is completed.[10] Celebrate - throughout the ups and downs of
Further progress payments will be made duringbuilding and in amongst all the stress make sure you
different stages of the building process. The bank willcelebrate each stage and most importantly the big day
require an invoice from the builder as well as awhen you take over the keys and can move in!
progress payment instruction signed by the customer