Understanding Your Home Loan & its Features
October 24, 2016
Mortgage Calculators
January 16, 2017

Understanding Finance for House & Land

Financing the purchase of a block of land and then building a house on it can be a confusing and sometimes frustrating experience. Unnecessary stress can be avoided by simply understanding the process and knowing that you have a team of finance experts working with you to ensure that things run smoothly.

Land

  • Land always settles first and must be registered.
  • Your funder will require evidence of deposits paid for both the purchase of the land and the cost of construction before your land settles (eg. 10% on land and 10% on build). If you have paid a construction deposit and do not provide a receipt, the funder will assume this has not been paid. This will result in a short pay of your first drawdown payment to the builder which, could then cause unnecessary delays in construction.
  • The Builder may also have billed you for 5% of build cost at this time to pay for the cost of preparing and submitting your plans to Council for approval.

Tip: Be sure to keep a copy of receipts for ALL deposits/payments you make (eg: EOI, land deposit & Builder Fees) and forward these to your Finance Team.

Build & Progress Payments

  • Your Building Contract will have a schedule of building stages that when completed, the builder will give you an invoice for work done to that stage.
  • Always check that the amount invoiced for that stage completed is identical to the schedule in your build contract.
  • Your Bank will require you to authorise each of these Drawdown Payment requests (either on the invoice itself or together with a bank specific form). In either case send these to your Finance Team who will ensure that they are processed for you in a timely manner thereby avoiding any unnecessary building delays.

Tip: Your first drawdown request for payment by the builder for work completed will be (in the example below) for $70,000 for completion to the Base stage. Keep in mind that you have already paid the builder the 5% in advance for the preparation of drawings before your building commenced.

This must be reconciled with the Bank at this time to ensure that this payment is accounted for otherwise the Bank will short pay the Base invoice by $17,500. This is the only part of the entire Progress Payment process that can be tricky. Be sure that your Finance Team has a copy of your receipt for the Deposit stage as early as possible to ensure a smooth process from the beginning.

A typical Payment Schedule could look like this

Stage Complete Claim
Deposit 5% $17,500
Base 20% $70,000
Frame 15% $52,500
Lock Up 25% $87,500
Fixing 20% $70,000
Completion 15% $52,500
Total 100% $350,00

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