Just last month our team attended the 2018 Waikato Home and Garden Show, we saw so many amazing exhibits (and great home show prices) it's easy to picture yourself snapping up a new build project. Below we discuss new build FYI's that may help you make a decision...
Before you start the process, it is good to know what you can (and can not do). In your free, no obligation home loan consult with one of our advisers can talk through your options, gather information and apply for a pre-approval for you. Because Building is exempt from the RBNZ rules you can apply for a pre-approval with less than a 20% deposit for first home buyers or with a 20% deposit for investors.
The build process can take a while and can seem daunting, but rest assured we are with you every step of the way and we aim to make the process as simple as it can be.
How do you want to manage your build…
A “Turn Key” build is very similar to buying an existing home. You have a fixed price contract with the builder or build company. You pay a deposit upon declaring the contract unconditional and you do not pay anything until the build is completed. With this method of building you may only need a 5% deposit. Talk to one of our advisers to see if this is an option for you.
Fixed Price Contract with Progressive Drawdown's
This is the more common method of building and is generally the cheaper option for you. Most build companies offer a “House and Land Package” which means you are purchasing the land and completing the build with the same company. Alternatively, you can purchase land on your own and approach build companies for just the build portion (keeping in mind, if you want to purchase land separately and do not have a build contract, plans and specifications you will need to have more deposit to purchase the land).
Initially your loan will be split into two – one for the land purchase and one for the build. Overall you will need to have a minimum of a 10% deposit on the total project cost for a first home buyer or 20% deposit for an investor - but included in the deposit you will need to have a minimum of 20% deposit to purchase the land portion.
For example, if you have signed up on a House and Land Package for $600,000. The Land portion is $350,000 and the build portion is $250,000 – you need to have a minimum of $70,000 deposit (20% of $350,000) to purchase the land and the deposit for the build (generally 5% but this varies depending on the build company).
Included in your fixed price contract will be a “Payment Schedule.” This will tell you the stages that you will be receiving invoices.
For each invoice you will draw down that portion of the loan. Once the progress payments have started you will need to make repayments on this loan – For affordability, most banks will allow you to make interest only repayments for one year while the build is being completed.
With the final invoice the bank will need to see Code of Compliance, a Completion Certificate (refer to “Valuations below”) and full house insurance with your bank noted as an interested party.
Builder's Risk Insurance
Your lender will want to see that “All Builder’s risk insurance” is in place during the build. This is going to protect your future home/investment during the building process – if anything were to be damaged or needs to be replaced during the build process this would be covered by the “all builders risk insurance” so you (or the bank) don’t have too.
The bank will need to see that the council has approved your build project. Generally, the build company will apply for this for you.
Prior to settling on the land/starting the build you will need to have a Registered Valuation. This will give the bank an understanding of the “as is” value (the land value) and the “as of complete” value. This needs to be arranged through the banks preferred valuation channel – which we can arrange for you. This normally costs approx. $900 but can vary depending on location, valuer and the build project.
Prior to advancing the final drawdown you will need to provide the bank with a completion certificate. This is when the valuer (normally the same valuer who assessed the property originally) revisits the property and confirms how much the property is worth. This generally costs $250 but can vary depending on location, valuer and the build project.
Variations/ Cost Overruns.
Your lender will want to see a fixed price contract, preferably with no variations. If you have variations they will want to know exactly what the cost of the variation is, to make sure that you do not go over the project cost and the project is still affordable.
Once the bank has advanced the first invoice for the build, they cannot provide any more additional lending until the project is complete. Sometimes you can apply to add variations or cost overruns onto the loan AFTER the final invoice has been drawn down, this is assessed on a case by case basis and is subject to the banks standard lending criteria.
If you are wanting to make variations to the build contract or have cost overruns you will most likely need to pay for these yourself.
When you are looking to building for the first, second or third time - or are just wanting to chat to someone about your options, call one of our advisers today 07 959 1851.