Building Your Own Home
Here at Ask Alan Mortgage Brokers we believe there’s no greater fun than building your own home! Finding the block of land is probably the greatest challenge, but with that out of the way the fun really begins.
Display homes give a great sense of current trends and are a wonderful way to while away many Saturday and Sunday afternoons. Choice of builder is all important and here it is essential to find examples and people your builder has built for previously.
On price – picking the middle ground is usually wise. Too cheap and you will be severely disappointed. There is no cheap way to build a home without cutting corners. Architecturally designed homes on the other hand usually come with a price tag that bank valuers won’t appreciate – and that leads to other problems.
Once you have your land contract and a builder’s contract we can start our work together.
How the finance works:
The bank will value the project and with your deposit the loan can be calculated.
The main difference between buying and building is that just as the house is built in a series of stages, so the loan is also “built” to match those stages.
These loan stages are called progress draws.
The construction process from start to finish can take up to a year, and through this process the bank pays the builder with the progress draws and your loan increases towards the final amount at each step.
I will be involved with you personally throughout this period. I have also built my own home 6 times – and especially on the early ones, made my mistakes. My experience here is to help you avoid those mistakes and enjoy your new home just as you imagined it.
Of the homes I have built, one was a display home in a housing estate that the builder leased back – that display home was my very first “mortgage” shop.
I enjoy the process of construction and will ensure that you are guided carefully through so that you truly get the home of your dreams.
Alan Heath – Principal, Ask Alan Mortgage Brokers
A construction loan grows with your home.
Your contract will ask for the builder to be paid (typically) at;
- First Fix – frames and windows
- Second Fix (lockup)
The bank pays the builder from your (growing) loan account.
The mechanism for this – your builder gives you an invoice, which you forward on to us.
We then liaise with the lender personally to ensure that your builder is paid in a timely manner.
At Final stage the bank does an on-site inspection, makes the final payment to the builder and then your loan becomes a “normal” home loan thereafter.
The term “House and Land Package” is commonly used, especially by builder’s sales team.
Generally this means that you get to put a red dot on a map inside the builders “display home” office and then choose the house to put on it.
Almost always though the land comes from a different developer – who has simply allocated some of these blocks to a builder.
This is NOT a Package to the lender. To the lender this is a two step process with a sale contract for the land which needs to settle separately to the build contract.
This is important – it means you have a two step loan process.
Step 1 your land loan settles.
Step 2 settles when the builder lays the foundations on your land – and then that second loan grows by way of Progress Draws.
To be a true “House and Land Package” which can settle in a single step , the builder must own the land. Meaning the land and the house are bought from the same entity.
Regardless of the wording however, it is important to understand that you will have two contracts, and two settlements.
We are here to make that process as stress free as possible. You get to enjoy choosing your land, your home and all its fittings and we will work in the background to make the finance cool, calm and collected.
Bank Valuation and Contract Price are two very important steps when building your home.
Step 1: deciding the price (contract price).
Step 2: having the bank determine fair market value by way of its own valuation (Bank Valuation).
Contract price typically comes in 3 stages
- The price of your land.
- The price of your house.
- The price of your “selections” (eg tiles), any post contract variations (eg shift an inner wall) and any quotes you want money for (eg driveway).
This sets the total price you have agreed to pay.
We then need to go to the bank of our choice and ask for the money we wish to borrow. There are two important thresholds: Above 80% of bank valuation mortgage insurance is payable, above 95% is a place we cannot go!
The bank’s valuer determines (their opinion) of what they think your house is worth on the open market. Hopefully combined contract price and bank valuation are the same and we can simply determine where your loan sits on the 80%-95% spectrum based on price and your available cash deposit.
If the bank valuation happens to come in lower than contract price then we will need your own cash funds first to make up that shortfall. Then we can determine the amount we need in addition to get to the important 80%-95% thresholds.
Once again – although this can get a little complicated – rest assured that we will personally guide you carefully through the process.