So you want to build a house?
Do you need a mortgage to do it? Then read on.
Along with the usual information the banks require when assessing to approve a mortgage (income confirmation, credit check, bank account conduct / statements etc) they will also require the following:
- Fixed Price Building Contract
- Valuation off the Plans
- Confirmation of Contract Works insurance
- Confirmation of First Home Guarantee (available through master builders and certified building practitioners)
The most common deal I get across my desk lately are home and land packages.
Here are some things to be mindful of when signing up to a build contract:
Understand what you are signing up for
Some building companies will do the basics (walls, roof, floor etc) but perhaps not provide a kitchen, or driveway. So it’s important that you look through the Spec Sheet to see what’s included in your contract. Banks need a Fixed Price Building Contract. This needs to have no Provisional Cost sums (PC Sums)
If you come across something with PC sums, for example the kitchen, then it’s important to obtain a quote for this work, and if acceptable to you, have this included in the fixed price contract.
It's important to also understand how the builder will be expecting payment
Some contracts will enable you to pay a deposit down, then the balance on completion.
This is called a Turn Key contract.
More commonly however you may need to make progress payments.
These are usually made when important milestones have been reached, or to fund those important milestones in the build process. Such as floor down, frames up, roof on etc.
When advancing funds for this, different banks will require different information and it will depend on a number of factors and considerations namely what your loan to value (LVR) ratio is (how much equity you have in the property).
Some banks will be satisfied with an invoice from the builder.
Others banks may only advance the funds upon an updated valuation from a registered valuer.
If you want to have a more in-depth chat about this, give me a call!