Hi,
I'm planning to build a small house on a block of land I own either at the end of the year or early next year. In order to qualify for the boosted First Home Builders Grant in Tasmania at the moment I need to have a contract signed with a builder by the end of next month.
I wanted to have a go at building our own kitchen and doing finishing jobs like painting and laying vinyl plank flooring to save some money (am not in a rush for it to be completed so would have plenty of time to get things finished). However I'm wondering how that would work with obtaining finance for the build and things like progress payments to the builder.
I can't be an owner builder as the conditions for the builders grant are stricter (would need to start work on the slab before the end of next month instead of just have a contract signed).
I have access to money outside of needing a mortgage (other investments and a family member happy to lend). Is it possible to get a mortgage to cover the whole expected build cost (about $160k) but then only draw down the first 70% of it, then pay the builder out of my own funds for the rest of it so it can be done at my own pace, and the builder can still get paid for his work on time?
I hope what I'm asking is clear enough
Hi Heliosphere,
your biggest challenge will be no kitchen - without a kitchen in the contract it will be deemed inhabitable and unacceptable security. The flooring is no drama, kitchen and bathroom are non-negotiable.
In regards commencing with the builder then funding it yourself, challenging but in essence not impossible. Basically the lender will pay the invoices as they go along, then when you're finished you can tell them this is the case & they can release whatever money is left provided that the completed dwelling AT LEAST matches the specs of the contract / valuation initially provided.
What is most unusual in this case is the timing, I have no experience of a build taking excessive length of time and therefore what the banks would do in this case. They would likely put some pressure on to get to a completed stage in a reasonable length of time as they stand very exposed should anything go wrong.
Thanks for the reply Rebecca
With the kitchen, what if it was in the contract as an allowance of say $10,000 for it even though I'm not intending to actually pay the builder for it?
Could I have a mortgage with progress payments:
Deposit 5%
Base 15%
Frame 15%
Lock Up 35%
Fixing 20%
Completion 10%
And after reaching lock-up stage I've borrowed 70% of the mortgage total from the bank. Can I just stop borrowing money at that point and pay the builder directly to complete the build, with him allowing us to do some of the work ourselves? I wouldn't be able to have the bank release any more money to the builder though as they would be paying him for work that I've already paid for. I feel like I'm not explaining that very clearly
Cheers, Tom
Hmmm i know in our case the bank wanted a completed house in order for us to borrow. We had to have window and floor coverings included etc so that if we defaulted for whatever reason they can sell the house as is to recoup their money without having to do work to it. I think that was because we borrowed more than 80% though so you might be right with enough of a deposit. As long as they can get their money back if they need to. Your situation sounds complex though so you should talk to a broker
Thanks Magavin, yes hopefully a bank would be more flexible if I'm borrowing less than 80%. I'm planning to meet with a broken next week so shall see what they reckon.
Sorry - this only just came through. It's up to the valuer and the way the contract is worded - if the valuer thinks what is in the contract is ok, or if there's enough room to use only the land value you may get away with it, but general rule of thumb is the kitchen is an essential.