Construction loans

Construction loans

If you’re thinking of building your own home, you’ll need to be familiar with the ins-and-outs of construction loans.

Construction loans are not as straightforward as standard home loans. There are additional decisions to be made about the structure of the loan, additional documentation is required, and the funding is released in an entirely different way.

Documentation

In addition to documentation about your finances, income, and identity, your application for a construction loan needs to include contracts or tenders for the construction, as well as the plans so that a valuation can be performed.

Further documentation will also be required before the first payment is made from the lender to the builder, including a schedule of the payments to be made (called drawdowns), the builders’ insurance details, and the final plans that have been approved by the local council.

Structure

To avoid having to contribute your full deposit and being charged interest on the entire loan amount from the moment the land purchase settles, you can split your mortgage into a land loan and a construction loan.

At the settlement of the land purchase, you start being charged interest and making repayments on the balance of the land loan – you may also be required to pay lenders’ mortgage insurance (LMI) depending on your deposit size.

The interest and repayments on the construction portion then kick in only as each drawdown is processed.

Funding

The drawdown schedule is very important; as you don’t start paying interest on each portion of the loan until it is paid to the builder, you, the lender, and the builder need to be satisfied with the schedule.

For the lender to make each payment to the builder, you will need to fill out a drawdown request form from your lender, and submit it to your builder. The builder can then send the lender your form with an invoice for that part of the payment and, after the lender is satisfied that the work has been completed and is up to the standard expected in the valuation, the drawdown can be completed with payment to the builder.

Any changes to the contract and plans can trigger a reassessment of the loan, so be as sure as you can that the plans and contracts the lender sees are final. It’s also worth trying to pay for any small amendments from your own pocket, rather than changing the loan and risking a reassessment.

Problems can also arise when other work on the site that isn’t completed by the builder needs to be paid for, as some lenders only make the remaining funds of the mortgage available after the completion of construction.

While some builders will include subcontractors as part of the main contract, meaning that they can be paid by the builder as stages of work are complete throughout the drawdown schedule, others will not do this. Again, this may make it necessary to pay from your own pocket.

 

Do you know your interest rate?

Do you know your interest rate?

Interest rates are a big factor in each repayment and the total cost over the life of a loan, so staying on top of your current rate, as well as the interest trends across the market, is essential.

By staying on top of interest rates, borrowers can make informed decisions about choosing a first-time home loan or getting a better rate by refinancing.

Interest rate percentages are based on a number of factors – the Reserve Bank, the cost of money on overseas markets, and the general state of the economy. Interest rates don’t appear to move by much when looked at as a simple number, sometimes only a fraction of a percent, but each basis point makes a significant difference to the total cost of a loan, and makes a big difference when you’re working to pay down your mortgage.

When you first lock in a home loan, you’ll choose a fixed or variable interest rate.

A fixed rate does not change over a set period of time, and your payments will be predictable each pay cycle. On the other hand, a variable rate is attached to the market interest rate and will move up and down with the market.

Interest rate calculators are very useful to help you compare rates across fixed and variable loans, and translate the rates into an impact on monthly repayments, loan length and the total cost of a loan.

The best way to keep on top of those movements is to stay in contact with your finance broker. They will be able to help you shop around to find the best deal for refinancing when the time is right for you.

Getting your home loan approved faster

Getting your home loan approved faster

Every home loan application is unique, so the time between your first contact with your broker and approval can never be predetermined.

If an application is not completed correctly, you risk delays in approval, or even being declined by potential lenders. There are, however, some things you can do to help the process move quicker.

The most common reason for a delay is a lender’s turnaround time to assessment, especially when some lenders have competitive offerings and experience larger application volumes, but a lack of preparation can cause this delay to snowball.

Be prepared

In order for a lender to assess your capacity to service loan repayments, every financial detail must be taken into account.

Other than the obvious documentation that needs to accompany an application – satisfactory identification and evidence of income by way of pay slips – many lenders will expect to see a reference from your employer, group certificates or tax returns, and records of any investments or shares that you might have.

If you are self-employed, you will need to organize alternative documentation to prove income, such as financial statements relating to the profit and loss of your business going back two years.

Lenders will also want to see bank statements going back a few months in order to track your spending and savings history. Most importantly, you will need to provide the details of your debts.

By having all your documents organized and a savings and repayment plan documented, as well as evidence that you can commit to the plan, you will increase your chances of receiving the loan you are after.

Disclose all information

Lenders want to see proof that you are capable of managing the responsibility of the loan, through steady employment, good credit history, and a debt-free approach to your financials.

To avoid back and forth requests, which can delay your application, ensure your lender has a thorough understanding of you as an applicant including appropriate identification of all borrowers.

Provide all the supporting and necessary documents upfront to your broker, have good, current information on your financial position, and convey as much detail as possible in relation to your requirements and objectives as possible.

Your broker will not only need to have your full financial details, they’ll also need to take reasonable steps to verify them.

Skip the valuation queue

Not all applications require a valuation, depending on the property and lending institution, and forgoing this step can save a considerable amount of time. You can also save time by having a valuation completed prior to your application, if it’s accepted by your chosen lender, but check with your broker first.

 

Selling your home

Selling your home? Here are the first steps to take

There’s more to selling your home than putting up a ‘For Sale’ sign on your front lawn.

Here are the first things you should check off your list to help you get a favorable result from your investment and ensure the selling process runs as smoothly as possible.

Speak to your broker

If you’re considering selling your home, speak to your finance broker to ensure that your plans after selling – whether it’s buying a similar property, upgrading, or building – are actually feasible, you don’t want to sell your home only to discover you can’t achieve what you had in mind afterward.

Choose a quality agent

A website and promotional material will always highlight the agent in the best possible way, but word of mouth and past client reviews will show their true colors.

Asking family and friends who have purchased or sold a property about their experience is a great way to ensure the agent you’ve enlisted will provide quality service.

Make sure the agent specializes in your area and is someone you feel comfortable around as they don’t just negotiate prices on your behalf, they also act as a mediator and represent you as a vendor.

Prepare the paperwork

Getting together all the documents required is a tedious yet necessary part of the property selling process.

From a disclosure document to a contract of sale, ensure all the paperwork is prepared in time to ensure it all runs smoothly.

For example, before a property can be marketed for sale, your agent will require a copy of the contract from your legal representative.

Don’t take things personally

Remember this is a business transaction. Don’t feel insulted if you receive feedback on the property that doesn’t match how you feel about your home. To ensure you come out with the best deal, remove all emotion and think of your house as a commodity.

Present your property well

Thinking that your home will sell itself can be a costly mistake. Despite how much you like the way you have it set up; furniture, flooring, and painting changes can make a big difference to the property’s wider appeal, and marketing it widely can increase the competition and, therefore, the price.

Trust your agent’s strategy, engage in a thorough marketing campaign, and invest in presenting your property in its best light to help secure the best financial result.

Surround yourself with a good team

Having a good team – broker, conveyancer or solicitor, and real estate agent – that communicates well will ensure any issues that arise during the sale can be quickly and easily dealt with.