FINANCE - BUILDING
LOANS
If
you
can’t find the home of your dreams or want to specify exactly how your
home
will look, you might choose to build your own home. A
‘Building Loan’ is
simply a structured approach to paying out a home loan.
While
repayment only begins when the loan has been paid out in
full, it is
important to note that interim interest will be charged for amounts
paid via
progress payments from the moment the first payment is effected. These
interest
amounts are debited to the home loan account, even though
repayments
are not due yet.
THE
BENEFITS OF BUILDING LOANS
- Progress
payments - normally 3 or 4, made to the builder at intervals during
construction - allowing you to pay only for the work as it is
completed.
- Repayment
only starts when the loan has been paid out in full.
- Various
repayment options are available ─ including debit orders, electronic
transfers, cash or cheque deposits,
salary deductions or stop orders
- Only
reputable builders, registered with the National Home Builders
Registration
Council are allowed, ensuring that your home is built according to the
SABS
standard and carries the necessary warranties.
QUALIFYING
FOR A BUILDING LOAN
Normal qualifying criteria applies
and
the stand upon which building will take place, must be within a
proclaimed suburb. Most banks now treat building loans exactly the same
as a normal home loan in terms of criteria and the percentage loan to
value they will lend.
In
addition. the following documentation is required
- Minimum
specifications (a standard bank form which needs to be signed).
- Copy of BuildingPlans.
- Detailed
quote or tender and Building Contract
- Schedule
of Finishes.
- NHBRC Enrolment Certificate
- Waiver of
Builder’s Lien (required before first progress payment).
ADDITIONAL
QUESTIONS ANSWERED
What is a
progress payment?
A progress
payment is a payment released by a bank assessor - authorised by the
customer -
to pay the builder, or another elected party that needs to be paid, at
certain
stages of the building process for work completed. Before any payments
are
made, the bond must be registered in the Deeds Office. Normally, 3 or 4
‘progress payments’ are made to the builder during construction - the
first
usually after foundation, the second at window height, the next one at
roof height
and the last upon completion of work.
What is
the typical payment process?
As work
progresses, requests for payment will be submitted by the builder. You
will
then have to submit a progress payment request to the bank. After the
bank
assessor has assessed the cost of the work carried out, payment will be
authorised, with consent from the customer.
How are
payments calculated?
The
assessor will calculate the amount available. The bank will only
reimburse
money for work completed or materials actually used and will retain
adequate
money for completion. Material purchased that does not yet form part of
the
structure will not be taken into consideration when this calculation is
made.
What is
interim interest?
Interim
interest is interest charged on the outstanding balance from the date
of the
first debit on your home loan account to the date of the
final
progress payment - after which date the normal
home loan repayment
will commence.
Even though repayment is only
required after the final progress payment, it is
advisable to cover these costs in the interim. Interim interest can
mount up
during the construction period and, if it is not paid, a portion of the
final
progress payment needs to be found from other funds as the interim
interest
will have utilised part of the loan that was granted.
IMPORTANT
CONSIDERATIONS
- Never sign
a blank progress payment request before inspecting the house to satisfy
yourself that it has been completed to your satisfaction and per the
contract.
- Always be
careful with a final payment request, as this advance should only be
signed
when you are satisfied with the completed dwelling. Do not sign if you
are in
doubt.
- An
Occupation Certificate issued by the local authority will be required
prior to
the final payment being made to the builder. This will insure that the
property
has been inspected and all requirements by the local authority have
been met.
- The
building/alterations are to be completed within the stipulated period
as per
the loan agreement, failing which the bank reserves the right to
withdraw
its offer
For
details on the various costs involved in buying a property go here
Visit the Finance Advice Centre for
all your finance answers
For details
on the various costs involved in buying a property go Here
Go to the Buyer Section for
all your buyer answers
Remember to look through
our Step by Step Buyer
Guide and also visit our Blog
for other helpful information
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