It has always been a hard decision, whether to buy an existing home, renovate or build new. Each has it‘s own challenges, an existing property has the risk of leaks, home handyman renovations that are not signed off by Council and in many instances the cost of a tidy up and this may include bathroom or kitchen renovations. You also never really know why the current owners are selling. Many of these risks can be reduced by having a full Building Inspection, a Registered Valuation and through assistance from your Solicitor.
Then there is the option to build new, the exciting prospect of seeing sketch plans develop into the home of your dreams, budget permitting. The biggest disadvantage with a new build is that it can be a very long process depending on the availability of finance, council consents, your builder and the location and time for construction.
The ideal new build is on a flat section with a fixed price contract through a recognised Master or Certified Builder such as GJ Gardner, Signature Homes and Jennian Homes. Unfortunately it is not that easy to find flat land, so additional expenses are incurred for earthworks and then through construction, as your home may then need to be double storey with basement garage & storage.
Choosing a builder is very important, find some one that you can get on well with, as you will be spending many long hours with them, check their previous work, this must also include talking to their previous clients at their homes!
Our experience with financing the construction of a new homes, renovations or spec builds goes back many years, through helping many clients with both Bank and Non Bank mortgages. The goal is to make sure that the funding is planned and structured correctly so that there is no additional stress for the client, builder and lender.
A normal requirement is for a client to have at least 20% deposit to allow an owner occupied construction project to be completed successfully. We have had instances where only 10% deposit was available, but this has in most instances caused problems, limiting release of funds by lenders for both section purchase and progressive payments to the builder / contractors. If you only have 10% a “turn key” build may be best for you where you pay a deposit and then settle on completion and issue of Code of Compliance. Having finance in place from the outset is a must though and we can help with this.
If you are funding a spec build through a non bank lender a deposit of 25% will be a guideline on a stand alone basis. 100% finance can be considered if you have additional security such as your home or other property as security.
So let’s look at a typical first home buyer new build. If you are not a first home buyer same basics apply, just the numbers are bigger!
A tip, when looking at sections, if you can have a long settlement on the section this will allow you time to save further funds if required and also allow time for plans to be prepared and building consent to get well underway.
Mr and Mrs New Home
Section Purchase $200,000
Fixed price contract $250,000
Contingency 5% of build cost $ 12,500
20% deposit $ 92,500
Registered valuation on completion $530,000
Once you have an overview of costs, now is the time to arrange finance and this should include both the land purchase and the build if your intention is to start building as soon as possible.
This is where it is so important that you get the funding right. Whilst many Banks will lend to 80% of the build costs, being house and land, we have an alliance with a specialist New Build Non Bank Lender, at mainstream rates, that will not only cover land and build cost but also assist finance some of those essential items that you want to buy personally and in addition be able to add the interest to the loan during the build period. This is very important as many clients can not afford to meet both loan payments during the build process and the cost of temporary rental accommodation, without using their cash savings. Then they run out of money during the build process or move into their home with credit cards busting at the limits, not a nice way to celebrate moving into your new home.
On buying the section the lender will expect a 20% to 30% deposit from you, based on the land purchase price or a Registered Valuation. You may wish to pay more as this will reduce your interest costs, but ensure you keep some cash as a float as you will often be required to meet some form of commitment deposit with your builder, surveyor, valuation costs and possibly a Geotech Report which comments on the suitability of the land for a building development, which may be required as part of the Building Consent process.
When you are then in a position to start building the lender will agree to release funds from your loan in stages as the building of your new home progresses. The amounts released are confirmed by interim valuation reports or inspections by an independent professional.
During the build process it is recommended that you stay in regular, if not daily contact with your builder. If you have any questions or feel something does not look right ask then, as the longer you delay the more costly it will be come to fix it later. From personal experience, I had a weekly meeting first thing on site with my builder, before the contractors arrived, with a checklist of items to discuss.
A new build is an exciting prospect, just make sure you seek good advice on the funding from financial advisers who have both funded the construction and built their own homes here in New Zealand.
Ready to start on your new build construction home loan, enquire online below or give is a call.