Browse Forums Building A New House 1 Mar 08, 2011 3:35 pm We have never built before and am a little confused by one part of the process. We have had our site survey done and have the first draft of our plans (only minor changes needed) with the costings coming in next week. Our builder says that as part of the process we will need to pay about 2% to them for a pre plan agreement which will enable the exact plans and costings to come in and for the plans to be sent to the shire for approval however, the bank has given us an approval in principle for a certain amount but cannot give us a loan approval until we can provide a building contract and council approved plans. This makes me a little nervous. The deposit will be about $7k which we dont have as we are getting the loan via the equity we have in the house we live in and will sell later on. It concerns me for the fact that what happens if the final plans are not what they initially suggest they are and we cant get approval? Wouldnt this mean we lose our deposit? Is this the norm with building? Its seems a bit of a gamble as we are relying on statements from the builder and bank which can change. Re: Is paying a deposit before getting bank approval normal? 2Mar 08, 2011 3:43 pm We got pre-approval from the bank and found out the maximum amount we could borrow, before we paid anything. When we signed the initial contract with the builder, we paid them a deposit of $2200. We could not get the final bank approval until we had all the documents from the builder. The builder wants to protect themselves and make sure they are not doing anything that they don't get paid for. If they were to prepare all these documents and submit them to council, and then you decide not to go ahead with the build, they will be out of pocket. By getting a deposit from you, they are ensuring that any expenses they incur are covered, whether you choose to build or not. I guess you just need to make sure that your pre-approved amount from your bank is going to cover the minimum cost of the house and give you a bit to spare for anything else that may come up. contract signed: Nov 09 Released to Construction: 23 Jul 10 Slab poured: 9 Aug 10 Frame completed: 30 Aug 10 Windows & Gutters: 7 Sep 10 Bricks: 15 - 23 Sep 10 Roof: 24 Sep 10 Gyprock: 20 Oct 10 Lockup: 25 Oct 10 Kitchen: 27 Oct 10 Tiling: 6 - 9 Nov 10 Painting: 17 Nov 10 Carpet: 30 Nov 10 PCI: 15 Dec 10 Handover: 17 Dec 10 https://forum.homeone.com.au/viewtopic.php?f=31&t=35943 Re: Is paying a deposit before getting bank approval normal? 3Mar 08, 2011 3:44 pm We paid our deposit before any approval. We knew the bank would give us the money, we never actually gave our builder an approval letter from the bank which was a bit surprising. Re: Is paying a deposit before getting bank approval normal? 4Mar 08, 2011 4:00 pm I understand that the builder doesnt want to do work and not get paid for it but I think $7-8K is a bit much in comparison for the cost to get to that point. I could also understand they want a deposit but dont understand why it is needed prior to the actual building contract being signed. They want 2% when signing the preparation of plans agreement. Re: Is paying a deposit before getting bank approval normal? 5Mar 08, 2011 4:03 pm Thats an expensive house for that kind of deposit! But yes we got conditional bank approval, signed a contract and paid our deposit, had to wait for council approval before our bank would give us proper approval. Are you able to draw on the money in your current mortgage? You could borrow or use credit card. Re: Is paying a deposit before getting bank approval normal? 6Mar 08, 2011 4:05 pm It does seem a bit excessive for a deposit. Maybe you could enquire with other building companies and see what their requirements are. If you find that your builder is asking more than other companies, you could query with them why they require so much. contract signed: Nov 09 Released to Construction: 23 Jul 10 Slab poured: 9 Aug 10 Frame completed: 30 Aug 10 Windows & Gutters: 7 Sep 10 Bricks: 15 - 23 Sep 10 Roof: 24 Sep 10 Gyprock: 20 Oct 10 Lockup: 25 Oct 10 Kitchen: 27 Oct 10 Tiling: 6 - 9 Nov 10 Painting: 17 Nov 10 Carpet: 30 Nov 10 PCI: 15 Dec 10 Handover: 17 Dec 10 https://forum.homeone.com.au/viewtopic.php?f=31&t=35943 Re: Is paying a deposit before getting bank approval normal? 7Mar 08, 2011 4:30 pm It depends on which state you live as each state may have differences in building contracts determined by local legislation. In Victoria, most builders ask for a deposit to enable them to prepare an initial esitimate and do soil tests. The builder can them prepare basic plans and cost estimate based on the soil test. The results of this is usually called a Preliminary Contract and if you're still happy with this, the builder will ask for a little more money, say $3000 - $5000 to prepare Final Contracts. This will be your plans with any changes and your colour selections. Again, this covers some of their costs to draw up plans and contracts. At this stage you can still pull out. Once the Final Contracts are presented to you, in Victoria you will be required to pay the builder 5% of the contract price on signing, less any initial monies already paid. So if the 5% deposit is $30,000, and you've already paid $1,000 and then $4,000 at prelim, you'll pay another $25,000. This is so the builder can go off and prepare detailed construction drawings, apply for permits, etc... At Final Contract stage you will most likely make further changes either because there is something wrong on the plans prepared, or you forgot something. If these result in changes to your contract price, then these are adjusted on the final payment at completion of the build. It depends on the builder if they will charge you a variation fee at this stage to do these changes, but most builders will only charge you this if you change something AFTER signing the Final Contract and it is not a mistake. Most Banks won't process a loan application without a copy of the Final Contract. In this case, you may be able to get pre-approval on the basis of the Preliminary Contract or estimate from the builder - again it depends on the bank or finance provider. In Victoria, most builders will give you 30 days to get finance approval after signing the Final Contract, but of course they have your 5% deposit by now so if you pull out, you may not get much of this back. 30 days should be enough time to get finance approved but don't count on it. Some banks are quick and as individual circumstances are different, just make sure you have everything ready for your application. Getting your finance approved is one of the conditions of your Final Contract to make the contract 'Unconditional' and fixes the contract price. The builder may change the contract price; ie increase it, if the contract does not become unconditional before a certain date. So you do need to do whatever you can to make sure finance is sorted, any permits are obtained, neighbours consent gained, etc as these can all be a requirement of your contract. As others have said, this is quite normal for the builder to want some money from you. It covers some of their costs when preparing their initial work, usually soil tests and esitmates, and possibly initial drawings. It's really good advice to check with your bank on borrowing capacity so you know your limit. Also most banks will only lend up to 80% of valuation without charging you mortgage protection insurance, so check out values of sold homes in the area you intend to build to get an idea of how much the bank will really lend you. For example, based on your incomes(s) you may be able to afford to borrow $400,000, but based on values of sold homes in the proposed area, the bank may only let you borrow $350,000, but you need $400,000! This will leave you $50,000 short unless you can save that. Re: Is paying a deposit before getting bank approval normal? 8Mar 08, 2011 4:58 pm I didn't have pre-approval before we paid our deposit, though our deposit was only $1000. We were pretty sure that we would get approval but didn't have our deposit (5% of the total loan amount) before we signed for our land and house. We took 6mths to save our deposit and was then approved by the bank within a week. It was a gamble but it gave us good incentive to save our 5% deposit ASAP. Jason Building a modified Platinum MKII with Blueprint Homes. House Plan Contracts Signed: 18/10/2010 Prestart 21/10/2010 Sandpad: 14/1/2011 Slabbed: 27/1/2011 Brickwork: 15/2/2011 Roof: 18/3/2011 Re: Is paying a deposit before getting bank approval normal? 9Mar 08, 2011 10:50 pm thanks for that everyone- especially Ourlindrum52. that sounds pretty much what is happening here. We have pre approval of what we can borrow without paying mortgage protection insurance due to the equity in lour house but just have to show some documentation to get it in writing. Its just an issue with getting the deposit together as we're using our equity so if we borrow or use a credit card to pay it, Im worried it will reduce our borrowing capacity. We have already paid for our soil survey and with that we got a plan done of the position of the house on the block and the changes we have made so if you factor that in it works out to be nearly $10k paid out before we even sign the contract to build. i know it comes off the end price but its a lot to pay out before knowing we can afford to build (based on final pricings) Re: Is paying a deposit before getting bank approval normal? 10Oct 19, 2011 7:29 pm I just wanted to bump this thread to see how you went with this. We are in a similar position. We have preapproval and are meant to be signing our contract tomorrow. We have to pay around the $8k mark tomorrow and the mortgage broker said there shouldn't be any problems at all but there is always the "maybe". Our house building blog: http://shellgavshouse.blogspot.com/ How much are you ahead in payments compared to where the build is at? Have you fully drawn down the loan? 5 9176 1 1346 Yes, get a builder, make sure he is experienced and a registered building practitioner 5 7552 |