What is a building loan?
There are times in life where you just cannot find that home you've always dreamed of. You've looked at thousands of homes and quite frankly, you think that designers in this country just don't cut it! Well that's when most people decide to build a home. Building your home allows you to choose what you'd like your place to look like. A building loan is merely a structured approach to paying out a home loan.
Remember that with all building loans, there is a land portion, often vacant land, that must be paid for, and a construction that needs to take place for the actual house, which also needs to be paid for.
A building loan is a mortgage option that can be used when you require financing for the construction of a new dwelling, as well as additions or improvements to an existing residential building.
What do I need for a building loan?
The requirements for a building loan are pretty standard across all of the banks. Here is an exact printout of what requirements there are in order to take up a building loan or apply for a building loan with a South African bank:
- BUILDING PLANS WITH MEASUREMENTS/SIZES
- DETAILED QUOTE/BUILDING CONTRACT/SCHEDULE OF FINISHES
- APPROVAL OF BUILDER AND TRADE NAME
- BUILDER NHBRC CERTIFICATE
- SITE PLANS
- UNIT PLANS FOR EACH UNIT
- PRICE LIST FOR EACH UNIT
- ALL RISKS INSURANCE LETTER OR POLICY
- WAIVER OF LIEN
TIPS when building a home:
1. Everyone knows the design of the home is your number one priority, but it's extremely important that you specify exactly what types of finishes you want. That's where the true costs come in.
2. A schedule of finishes, down to the last detail, must be put into a formal contract and agreed to and signed by yourself and the builder. Do not get caught with inferior finishes that were not specified. i.e. Italian bath handles are not made in Pofadder.
3. The problem is that most people run out of financing during the building operation, because 80% of all houses that are built end up costing people more than they planned for, so make sure you get everything written into your contract and ask the builder/developer how much fat has been built in to the agreement to cover eventualities. An honest builder will add at least 15 to 20%.
4. Make sure that the builder states whether or not their prices are subject to escalation. If so, make sure that rate of escalation is clearly stated in the tender/contract.
5. The contract period is very important and the date of commencement and completion of the building must be stated as well.
6. Make sure you check on the validity and reputation of your builders and ask for references to see previous projects they've completed to see if you like what they've done or not.
7. Banks will check to see that the builder you using is acceptable before they grant you the loan. They must be registered on the NHBRC.
Bank requirements for building loans that are standard across all South African banks:
1. Building Loans are for: The vacant land; the financing of the construction of a dwelling, additions or improvements to an existing home.
2. Progress payments are made against completed work subject to a pre-determined number of draws (each stage of the building process in assessed by the bank at which point they will release more money into your building bond account). Most banks retain a final payment for you the owner to sign off a happy letter, content that all is well. VERY IMPORTANT - With most building loans, you / and / or your builder must have started building before you make your first draw down against available funds. DO NOT GET CAUGHT OUT!!!! This can be expensive and very frustrating.
3. The builder must be NHBRC registered - The NHBRC is here to protect you the buyer and to make sure that builders keep to a regulated standard ( Visit this site ) - http://www.nhbrc.org
4. Normal home loan criteria apply
5. Building has to meet the banks minimum specifications and requirements. For specific bank requirements see the following links or contact the Wizard Team.