Borrowing to Build?
In today’s property market, it can be hard to find the perfect home for you and your family at a price that fits your budget.
One of the main benefits of building your own home is that you have the freedom to make all the decisions, meaning you can design a house plan that’s perfect for you, making that dream home of yours achievable from day one.
But where do I start?
Cross Country Mortgages will help you through the finance process; assisting you with your application to get the money you need to pay for the building materials, labor and other related expenses for building your new home.
How do I know what the right type of building contract is for me?
Secure Your Best Mortgage
The first step when it comes to financing your new home build or renovation is understanding, and determining which building loan best suits your needs and situation.
With so many banks in New Zealand, there are many options for building contracts and each of these banks treat their building loans differently. This is where First Step Home Loans can help you. Below is a summary of the main types of building contracts.
Make sure your finances are all lined up before you commit to signing a building contract. You also need to make sure the timing of payments will work with your loan agreement. The team at First Step Home Loans can help with all of those details.
A construction loan is a short-term loan used to pay for the building of a house or home renovation project from start to finish, typically in a term of 12 months.
How does a construction loan work?
As work progresses, money will be paid out in stages, as required. These stages, (such as foundation being laid, framework going up, etc) are normally set out before construction begins.
Do I need a deposit for a construction loan?
Your bank will typically require a 20% deposit, however in some instances, you may be able to receive a construction loan with a 10% deposit (approvals of this are on a case-by-case basis).
How do I qualify and apply for a construction loan?
To qualify for a new build loan, you must be planning a build and be able to provide relevant documentation (such as architectural plans), as required. You will require a strong application which includes information such as your income, credit history and bank account conduct and this is submitted to your bank. First Step Home Loans can help you with this application, ensuring you have all the information and documentation required to form and submit a successful application.
What are some of the benefits of a construction loan?
During the project you only pay interest on the outstanding balance, instead of paying interest on the limit of your loan. The interest you pay increases as you draw the loan down.
A construction loan is usually on a floating interest rate, which is great if the current interest rate is low.
A Fixed Price Contract is where a builder provides a single fixed ‘all inclusive’ price to complete a build deal. Your builder will manage the whole building project including getting consents, working with architects/designers and organizing all subcontractors. Thus taking over all management until a code of compliance has been issued, then you will have a property for the bank to use as security. We will work closely with you helping and advising on steps and processes that will need to be considered before building starts.
Benefits of Fixed Price Contract
Builder project manages until a code of compliance is issued.
Builder organizes consents and deadlines with sub-contractors.
You are responsible for project managing the whole building process yourself if you have labor-only contracts with the tradespeople you hire. The tradespeople will only be responsible for the trade you have hired them to complete.
Progressive payments will only be paid out to invoices you already have and are always required to obtain quotes for materials and all sub-contracting costs upfront.
This form of contract is only best for those experienced in the ins-and-outs of construction and are limited to the land value only unless the buildings are already permanently fixed to the land. Not recommended for a first home builder.
Benefits of Labor Only/Partial Contracts
During the project, you only pay interest on the money already paid out.
With a ‘Turn Key Contract’, you’re essentially having a house built for you and project managed by a developer. The land and property is owned by the developer and they finance the build, with you providing a 10% deposit to secure it. The ownership of the title of the property is transferred once the house is built.
This means no interest or loan repayments required until the property is completed, settled and ready for you to turn the key in the door, giving you extra time to save.
Benefits of Turn-Key Contracts
Show home on site so you get a look and feel for the finished product.
10% deposit required for finance (which is half the amount of a standard home loan deposit).
No interest or loan repayments required until the property is completed and settled.
No large upfront costs.
You don’t have to pay progress payments.