Residential construction lending is different from just getting a home loan and therefore it is better to speak to a broker that is an expert and has specialist knowledge in this type of lending.
My name is Stuart Wills and I am an expert with new build finance.
Residential Construction Lending Is Different
When you are building there are a lot of things that you need to consider and often a lot of variables.
Some of the terminology used is quite different too.
You need to understand the process, the options and of course know how to arrange the finance to fit with the build.
Some of the key considerations that I would discuss with clients about to build are;
- Fixed Price Contracts – most building companies will offer fixed price contracts but they all differ a little. As the person having a house built you need to understand what is included, but more importantly what is not included or has a PC sum.
- PC Sums – most building contracts will have some PC sums within the contract. A PC sum is used where the actual cost has not been determined and is often used for things like ground works, electrical and kitchens.
- Variations – most people who are building a new home will not be able to check everything out before they start and therefore it is common to have some variations. The building companies are not so keen on variations as it means some more work for them (not always) and they will generally either limit the variations that you are allowed, or charge a fee for the variations.
- Completion Dates – one of the most common complaints we hear is about delays whereby the house is not complete by the expected date. Sometimes this delay is measured in days, but it is not uncommon to hear about this being weeks or even months.
- Settlement – when your new home is finally ready you will want to move in straight away, but unfortunately often you will be unable to move in until the Council have provided a code of compliance.
These are some of the common issues that need to be understood and discussed when you are building a new home.
Why You Need An Expert
When you visit the building company you will be dealing with a representative of that company and I’m sure they will seem very knowledgeable and will seem to answer all of your questions and give you the confidence to proceed.
Of course they will be nice – they are paid to sell houses!
What they may not explain very well is some of the issues that we have highlighted here.
It is also important to understand that in most cases you will not be dealing with the salesperson after the build contract has been signed. In most cases you will be appointed a project manager and given a contact person within the office to direct any questioned too.
For this reason it is always good to have someone on your side who will explain the building process and ensure that you have the money at the right time to fund the build too.
As a mortgage broker who is a specialist new build broker I know the process both from my personal experience building our new home recently, and also from arranging our finance and finance for a lot of others too.
When we built our home we were able to insert a start date and completion date into our build contract which ensured that the new home was completed on time. If either the start or completion had been late then we would have been able to claim compensation from the building company, so just by having those clauses within the agreement meant they probably put ours at the top of the list. We also made sure that our PC sums were large enough to allow us to do what we needed, and with both the kitchen and electrical we increased the PC sums to ensure that we could upgrade the build. We also had the contract amended to allow us to make more variations without incurring the standard charges for these. Finally we ensured that the finance allowed us to have all of the window dressings (shutters, blinds and drapes) and move into the house when it was completed without having to wait for code or compliance.
Making sure you understand the potential issues and are able to deal with them is something that I do.