Building your dream home?

When you start the process of building a home there are a lot of decisions to make.

Many people dream of building their own home with a design that suits their family situation and desired lifestyle, but while building a home can be fun and give you a sense of achievement it can also be stressful and end up being more expensive than budgeted if you are not very careful.

Did you know that you can borrow up to 95% to build a new home?

While low deposit home loans are now not as easy to get for buying existing property, the banks are able to provide low deposit mortgages to people building new homes and therefore this is becoming a viable option for many first home buyers. Because of this, many banks have revamped the construction finance so they can offer home loans specifically for first home buyers that want to build their first home. These loans allow you to select a section and house design and have it built using a fixed price contract to ensure that costs are managed. You really can build your dream home with the help of a mortgage adviser.  

The team of mortgage advisers at Mortgage Link are experienced at finding the right construction finance to meet your circumstances.

The role of a Mortgage Link Mortgage Adviser ranges from explaining the different types of loans available, what paperwork is required, finalising the loan approval, through to ensuring the progress payments work smoothly.

The Mortgage Link team are available to answer your questions and will make the progress a much more enjoyable experience.

Below is a guide for construction and renovation loans that explains some of the key terms.

Guide to Requirements for Construction & Renovation Loans

Description:-      A loan used for construction of a residential house on vacant land or to make structural renovations to an existing property.

Key terms

Progress Payments

A progress payment is a loan where payments are made progressively at stages when required.  A schedule of payments is usually set for each stage of the construction, e.g. foundations, roof on, fully enclosed etc.

Fixed Price Contract (non-Escalation Clause)

This is where a builder takes ownership/supervision of the whole project.  The builder costs the whole job and specifies every item down to its cost and type.  He legally commits himself to the contract price.  The builder sources building materials, does the carpentry, pays the suppliers, employs the sub contractors such as drain-layers, bricklayers, plumbers, electricians, painters, wall paperers, carpet layers etc.  It is the builder’s responsibility to manage and pay the sub contractors within the Fixed Price quoted in the contract.  (any cost over runs will be paid for by the builder).

Quantity Surveyor

A Quantity Surveyor is an expert in costing the individual sub contractors that form the completed dwelling.  Construction under full supervision by a Quantity Surveyor is another option to that of a builder offering fixed price contract.  The applicants will need a Quantity Surveyor to supply all of the sub contracts and costings.  The project should be fully controlled and managed by the Quantity Surveyor until fully completed.

Labour Only or “contracting out” (or sub contracting)

Labour only contract is where a prospective borrower wishes to manage the project themselves.  With this type of contract it is vital that every single aspect of the project has been covered and costed correctly.  The prospective borrower will employ the builder and all the sub-contractors on a labour only basis and source the materials to be used by sub contractors themselves.  They pay on a piece meal basis for materials and services rendered by suppliers and tradesmen.  Sometimes they can save in costs but if they are not careful a lack of co-ordination could lead to an under-estimate of the cost of the project resulting in cost over-runs and a blow-out of the LVR the bank has approved on.

Building consent

Also known as a permit.  Consents are issued by the local Council in the locality of where the house is being built.  Plans and specifications are submitted to the local Council who approve the method of construction, the materials of the proposed dwelling, that building codes are being adhered to.  They ensure that all other government building regulatory requirements are being met (Resource Management Act to name one).  Building inspectors visit the project at certain intervals to ensure that the various building codes and specifications are being adhered to (i.e. they will inspect the property before internal linings are stared to ensure internal electrical wiring is up to standard).  Building consent is required before any new home can be started or any alternation to existing dwellings can be undertaken.

Code of compliance

This is issued by the local council when the dwelling is fully completed.  This is a certificate to the effect that completion has been in accordance with the building consent.

Builders All Risks Insurance

This type of insurance is a cover against civil claims (say public liability) as a result of damage done.  It covers materials from fire, theft and water damage.  It can also cover against a digger damaging power supplies, telephone cables, drainage etc.  Most Lenders will require the policy held to note them as an interested party on the insurance.

House Insurance

Clients need to have insurance in place while construction is taking place.  For renovations ensure the house insurance is noted and cover the renovation risk.

Certificate of Title, Cross Leasing and Sub-divisions

A lender usually requires the prospective borrower to be fully registered on the Certificate of Title.  This is never the case where a developer is doing a cross lease sub-division and is selling off sections.  
Sometimes an owner of a residential dwelling house wishes to cross lease off part of their section and build an additional dwelling.