FINANCE - BUILDING LOANS

If you can’t find the home of your dreams or want to specify exactly how your home will look, you might choose to build your own home. A ‘Building Loan’ is simply a structured approach to paying out a home loan.
 
While repayment only begins when the loan has been paid out in full, it is important to note that interim interest will be charged for amounts paid via progress payments from the moment the first payment is effected. These interest amounts are debited to the home loan account, even though repayments are not due yet.
 
THE BENEFITS OF BUILDING LOANS
  • Progress payments - normally 3 or 4, made to the builder at intervals during construction - allowing you to pay only for the work as it is completed.
  • Repayment only starts when the loan has been paid out in full.
  • Various repayment options are available ─ including debit orders, electronic transfers, cash or cheque deposits, salary deductions or stop orders
  • Only reputable builders, registered with the National Home Builders Registration Council are allowed, ensuring that your home is built according to the SABS standard and carries the necessary warranties.
QUALIFYING FOR A BUILDING LOAN
 
Normal qualifying criteria applies and the stand upon which building will take place, must be within a proclaimed suburb
 
In addition. the following documentation is required
  1. Minimum specifications (a standard bank form which needs to be signed).
  2. Copy of Provisional Plans or Sketch Plans.
  3. Detailed quote or tender.
  4. Schedule of Finishes.
  5. Waiver of Builder’s Lien (required before first progress payment).
ADDITIONAL QUESTIONS ANSWERED
 
What is a progress payment?
A progress payment is a payment released by a bank assessor - authorised by the customer - to pay the builder, or another elected party that needs to be paid, at certain stages of the building process for work completed. Before any payments are made, the bond must be registered in the Deeds Office. Normally, 3 or 4 ‘progress payments’ are made to the builder during construction - the first usually after foundation, the second at window height, the next one at roof height and the last upon completion of work.
 
What is the typical payment process?
As work progresses, requests for payment will be submitted by the builder. You will then have to submit a progress payment request to the bank. After the bank assessor has assessed the cost of the work carried out, payment will be authorised, with consent from the customer.
 
How are payments calculated?
The assessor will calculate the amount available. The bank will only reimburse money for work completed or materials actually used and will retain adequate money for completion. Material purchased that does not yet form part of the structure will not be taken into consideration when this calculation is made.
 
What is interim interest?
Interim interest is interest charged on the outstanding balance from the date of the first debit on your home loan account to the date of the final progress payment - after which date the normal home loan repayment will commence.

Even though repayment is only required after the final progress payment, it is advisable to cover these costs in the interim. Interim interest can mount up during the construction period and, if it is not paid, a portion of the final progress payment needs to be found from other funds as the interim interest will have utilised part of the loan that was granted.
 
IMPORTANT CONSIDERATIONS
  • Never sign a blank progress payment request before inspecting the house to satisfy yourself that it has been completed to your satisfaction and per the contract.
  • Always be careful with a final payment request, as this advance should only be signed when you are satisfied with the completed dwelling. Do not sign if you are in doubt.
  • An Occupation Certificate issued by the local authority will be required prior to the final payment being made to the builder. This will insure that the property has been inspected and all requirements by the local authority have been met.
  • The building/alterations are to be completed within the stipulated period as per the loan agreement, failing which the bank reserves the right to withdraw its offer
For details on the various costs involved in buying a property go here

For more detailed information on Finance issues go here
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