Build your dream home the way you want it

Construction Loan

Building your dream home sounds interesting and certainly, it is. And, the good news is that banks give up to 90% of the project cost under construction loans. So, before you finalise any section and start talking to your architect and builder, it is recommended that you have a good idea of the overall building process, funding arrangement, and documentation required by the bank to approve your construction loan.

Do your homework

The first step is to know the whole project right until the end in advance. It means that you will need to work out all the costs involved in completing this project upfront so that there are no surprises at the end.

The process starts with knowing the value and type of the Land you wish to purchase, costs involved to bring Public Services to the site e.g. power, water, gas, phone etc. if already not available, Architect and other associated fees, Council fees for the all the Consents and Permits, House Building Cost, Valuation cost, Legal cost etc.

The biggest cost is building cost so it is ideal to have a Fixed Price Contract with a Master or Certified Builder so that your project cost does not fluctuate while the house is under construction.

Once you have understood the whole project and know the figure, we can discuss loan eligibility and bank options with you so that you can progress on your dream project.

Documents required

Bank will require following documents in order to process your Construction Loan application:
– Income, deposit and identity documents of all applicants
– S&P Agreement for the purchase of the land
– Building Consent, Resource Consent and Approved Plans from local Council
– Fixed Price Contract and Payment Schedule with the Builder
– Registered Valuation Report confirming “As is” and “Upon Completion of the Project” values of the property
– Builder’s Risk Insurance
– Other invoices related to the project such as architect invoices, council contribution etc.

How the bank makes payment during the build?

Bank makes progressive payments at agreed completed stages of the project. Generally, there are four stages when complete triggers the progressive payments i.e. Foundation, Frame-up, Lock-up, and Lining. This is not a thumb rule though. The banks can release payments in between if they the builder’s payment schedule states otherwise and the bank agrees to make progressive payments according to that.

Most of the banks retain last 5% of the project cost which is issued when the Code Compliance Certificate of the house is available. The banks also require Registered Valuer’s Report confirming project completion and House Insurance before releasing this remaining balance.

Can bank ask for Progressive Registered Valuer’s Report?

Generally, the bank requires Progressive Registered Valuer’s Report at the main trigger points mentioned above to confirm the level of work completed at the site but the actual requirements may vary depending on the comfortability of the bank.

Do I have to pay interest on whole loan amount from the day one?

You pay interest on the amount released by the bank on the project. This means that you don’t have to pay interest on the whole loan amount approved by the bank from the day one.

The bank can also allow you to make interest-only payments on the amount drawn so that you don’t have to pay principal payment while the project is in-progress. Once the project is complete, we can help you to restructure your home loan accordingly to your suitability.