Building your own home is an exciting yet often stressful experience. But, with the right finance and a qualified building team, it can also be a rewarding and satisfying way of securing your dream home, says Carl Coetzee, CEO of BetterBond.
”Record-low interest rates mean that it’s a good time to apply for a building loan. The repo rate has held steady at 3.5% for more than a year, so homeowners can afford up to 30% more than when the repo rate was in double digits in 2020.” Furthermore, with travel curtailed during the pandemic, and more people spending time at home as they work remotely, we are seeing renewed interest in renovations and the construction of custom homes.” Building loan applications accounted for just over 8.3% of all BetterBond’s applications for the 12 months ending September 2021.
Whether you plan on starting from scratch or renovating an existing home, a building loan will make it possible to pay for construction as work progresses. “Unlike a typical home loan that is paid in a lump sum, building loans are paid out by the bank in stages, as ‘progress payments’,” says Coetzee.
The following documents are needed to apply for a building loan:
- Three or six months’ salary slips depending on your type of employment.
- Three months’ bank statements to verify your income and confirm monthly expenses.
- Include the plan and specifications of your building work, as well as an indication of what it will look like when completed.
- Schedule of finishes – a list of the materials that will be used throughout the house.
- National Home Builders’ Registration Council (NHBRC) certificate proving that your builder is registered with this regulatory body.
- Your building contract that sets out the scope and terms of work.
- Building quote that sets out cost estimates for the work to be done.
- Waiver of builder’s lien – a written agreement with your builder who gives up the right to place a builder’s lien on your property, retaining possession of it if there is a dispute over unpaid costs.
“A progress payment is a request by you to the bank to pay out a portion of your loan to pay for work as construction progresses. It means you need less working capital for your build as you pay your builder and contractors in instalments, when different stages of work are completed, rather than having to budget for a single lump sum once the project is completed,” Coetzee explains.
If the deposit is part of the building loan agreement, this will be used first and then progress payments can be requested. “Decide on the number of progress payments with your builder before work starts. These usually range between four and six, depending on the scope and complexity of your build,” he says.
Also, remember to start servicing the interim interest once the first loan payment has been made. Interim interest is calculated on your outstanding balance during the building period and if not paid during the build, could leave you having to pay the shortfall to your builder from your own pocket.
Coetzee explains the process of authorising payments. “You fill in a payment progress form from the bank that granted the building loan. The bank will then assign a valuer to inspect the building work and, if it meets their requirements for that stage of the project, the funds will be released.”
He adds: “Ultimately, it is your responsibility to verify that the work has been done satisfactorily, so always check the quality of the building before making progress payments.” The final progress payment is done once you supply the bank with an Occupation Certificate, obtained from the local municipality.
As your builder is the most important aspect in the construction of your dream home, Coetzee offers the following advice:
- Word of mouth is always best. Seek advice and referrals from people you trust, such as your architect or a building inspector.
- Ask for references and visit other homes which they have built if possible.
- Choose a builder with experience in building the type of home you want.
- Check their credentials and qualifications.
- Make sure your builder is registered with the National Home Builders’ Registration Council.
- Ensure that your builder has office support, with an administrative process to keep track of procurement, payments, accounts, and deliveries.
- Be clear about workflow and timelines before the project starts. It’s important to have a sense of how your builder communicates and manages tasks and schedules.
“Essentially, you need a builder who can keep to plans, is able to communicate, and can manage time effectively,” says Coetzee.