New Build - Different Banks Policies
Does your bank have the best policy for your build loan?
Purchasing a section and building a new home has become a popular and affordable way to get on the property market in Queenstown. This article takes a brief look at how the various banks construction policies vary and how this impacts you!Loan to Value Ratio (LVR) – LVR is the percentage of the project cost that the bank are happy to fund, the maximum LVR available when building varies between 80% - 95%, although above 90% LVR is restricted to land and build packages or Turnkey builds. This means you could build a new home with as little as 10% deposit or even 5% for a Turnkey Build.
Valuations – All banks require a registered valuation prior to the build starting of the “as completed” value based on the build contact and specifications. Some banks however require further valuations during the build, where others don’t which could save you $$’s. Some banks will also calculate the LVR using the registered valuation instead of using the cost to complete. This can reduce your LVR and save you money on low equity margins/fees.
Fixed price contracts – All the banks have different requirements for what must be included in a fixed price contract. This does depend on LVR but for some banks the contract must include everything down to the letter box, while some banks allow more flexibility. If you are looking to borrow more than 80% LVR Provisional costs (PC Sums) are another variant between lenders.
Affordability – Whether you are made aware or not, depending on the bank, they will add between 0-15% of your fixed price contract in servicing to allow for overruns. This could affect the level of borrowings you are able to get. For example, if your fixed price contract was $450,000 then it could actually be assessed at $517,500 (15% more) making a big difference to what you can borrow.
These are just some of the differences between the banks when it comes to construction loans. At Loan Market Queenstown we can work with you to make sure you are paired with the most appropriate bank for your construction needs, whilst also ensuring you get the best deal.Does your bank have the best policy for your build loan?