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When it comes to securing a loan to build a new home, it is essential for the owner to provide a range of additional documents to the financial institution before the loan will be finalised or payments can be made to the builders.
According to The Property Factor’s Tess Rodrigues, anyone who wants to use bank finance to build a new property must provide copies of the plans, a copy of the tender and building contract, a certificate from the National Home Builders’ Registration Council (NHBRC) and a schedule of finishes along with a detailed list of specifications.
The other standard documents, such as an Offer to Purchase, identity documents of the owners and proof of income must also be supplied.
Should the bank approve the loan, the conveyancing attorneys then needs to have the mandatory FICA documents, a copy of the approved plans from the municipal authority, a building contract and a waiver of a lien from the builder, a copy of the builder’s insurance certificate and proof that the property has been enrolled with the NHBRC.
The owner of the property will usually be granted a bond based on the value of the land and the improvements to it, which normally includes the buildings. Thus if the bank grants an 80% bond it means that the owner will have to find the balance of 20% on transfer of the property and registration of the bond.
Rodrigues says that the first stage of building has to be financed by the owner and only after that will the bank allow progress payments to be made to the builder. The progress payment must also be authorised by a bank’s valuer who will assess the work done and its approximate value.
Rodrigues says that generally banks will make four or five progress payments to the builder but as soon as the first payment is made, the owner’s home loan account is debited and this amount attracts interest from the outset and must be paid monthly.
She warns that anyone considering building a home should be thoroughly familiar with the loan terms and conditions otherwise he or she might be stuck with an incomplete home that needs to be completed.
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Speak to a home loan consultant about financing your new property or reviewing your existing mortgage. We are able to assist in lowering your bond repayments and securing attorney discounts.
Complete this short form online
Call us on 011.327.4489
Email: morne@mortgagepluscc.co.za
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Applying for a loan to build is more complicated than normal bond
Building loan applications differ slightly from ordinary residential home loans when it comes to the documents required, and the administration process after the mortgage has been registered often causes confusion for many unsuspecting home builders.
Tess Rodrigues The Property Factor, says that over and above the normal documents required for any home loan application – such as the offer to purchase, identity documents and proof of income – you will also need copies of:
“In other words, the bank won’t pay for the plot in full.
“The banks’ golden rule on building loans is for the bank to retain sufficient funds to bring the project to completion.”
She says the builder and/or owner will have to finance the first stage of building. Once that is completed, the owner will apply to the bank for a “progress payment”. The bank will send a valuer to assess the work done on the project, who will then advise the bank of the amount it needs to pay out.
The banks will make approximately four to five progress payments on a project. And, warns Rodrigues, “Please note, don’t ever pre-sign the progress payment forms and hand these over to the developer or builder. Always be aware of what has been paid out and when.
“As soon as the first payment is made, the applicant’s home loan account will be debited with the amount. This debit balance will attract interest, which must be serviced monthly.
“Although the first instalment is only due when the project is completed, it is vital to service the monthly interest after a withdrawal, whether it is on the plot or the first progress payment.
“If you apply for a flexi or access facility and qualify for it, it will be granted with your home loan. However, it will only be effective once the project is completed. In other words, if you deposit any additional funds into your home loan account while the building is still in progress, you won’t have access to these additional funds deposited.
“Before starting a building project, it is vital to familiarise yourself with the building loan terms and conditions, failing which you may see yourself out of pocket. Worse still… you could be without a roof over your head,” Rodrigues says.
CONTACT US
Speak to a home loan consultant about financing your new property or reviewing your existing mortgage. We are able to assist in lowering your bond repayments and securing attorney discounts.
Complete this short form online
Call us on 011.327.4489
Email: morne@mortgagepluscc.co.za
www.mortgagepluscc.co.za
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