With a building loan funds are advanced in stages upon request from the client and submission of various documents, as opposed to an ordinary home loan where funds are paid out in lump sum payment on the day of registration. Such intermittent payments are called ‘progress payments’, the amount of which will be decided before commencement of building operations and no more than six payments will be made. Building loan funds can only be used to build or alter a residential property,
The major advantage of a building loan is that repayment of your loan only begins once the final progress payment has been made to the developer. It is important to note that interest will be charged on funds already disbursed. Such interest is called interim interest. You can request for these costs to be debited to your personal transactional account, as opposed to your home loan account.
DOCUMENTATION REQUIRED AT APPLICATION STAGE
In addition to the usual documents that the financial institution will request from you when applying for a loan, the following are specifically required for building loan applications:
- Provisional drawings for your home: The bank will need approved plans, sketches as well as a site plan and a schedule of finishes.
- Building Contract: should be signed by all relevant parties and should make reference to the following: a timeline and budget assigned to each portion of the project and which materials are to be used at what stage.
- Proof of NHBRC Registration: confirmation that the builder has been registered and has sufficient insurance to cover the building and building materials for the duration of the construction period.
- NHBRC Enrolment Certificate: enrolment with the NHBRC provides for five – year warranty against any structural defects.
- Engineer’s Certificate: used to confirm the structural soundness of the foundation of the property.
- Builders Lien: waiver whereby the builder waives all rights to the property and any materials used for the construction thereof.
ADDITIONAL DOCUMENTS REQUIRED
Before the financial institution makes any progress payment, they will request various documentation. It is also at this point that the financier will send a valuator to conduct a site visit to confirm that the mentioned work has been completed.
The following are some additional documents that are required during the construction period or before final payment is made:
- Approved municipal plans
- Electrical and plumbing compliance certificates
- Electrical fencing and gas compliance certificates, if applicable
- Occupancy certificate issued by the Municipality
- Letter of Satisfaction – confirming that the property has been completed to your satisfaction and as agreed upon with the builder.
At the end of the day, you choose the type of loan based on your circumstances and affordability. It is important to note that with good planning and due diligence, the home you choose to build or purchase could be the home of your dreams.