Browse Forums Home Finance 1 Feb 18, 2013 12:54 pm Hi guys, I am new in this forum and hope that I am posting a correct question at a correct forum... I am building in Beecroft, NSW. It 's a major renovation and extension, so I will be engaging a small builder (non-project home builder). I have a couple of questions about construction loans (which my loan broker couldn't answer)....hopefully this is the right forum for these questions. 1. Progress payment - how does it work? For example, if there are 10 different stages. Does the bank inspect and approve the completion of the work before the progress payment is made? If say one of the stages is $30K electrical, does the builder's electrician need to complete the work before the bank pays him? 2. Negative variance - I was told by a builder that I can have everything included in the building contract for loan approval, e.g. landscaping, window coverings, flooring, driveway etc. But if I engage my own contractor for these works, the builder will give us a "negative variance" so that there is a potential savings of 20% on the builder's margin on these standalone works. I first thought it sounds great, but then it doesn't sound 100% right because I am not sure if the bank will be happy to allow their money to go to a third person although it's for the same work. Has anyone experienced the above? Any advice will be appreciated as I will be going out to tender soon and want to make sure I know what I am talking about when I am negotiating with the builder. Thanks in advance Re: Construction loan questions... 2Feb 19, 2013 7:59 pm Hi GBDHouse, A drawdown or progress payment request is the process of asking your lender to pay your builder for part of the work that has been completed. Usually a builder will require five payments to be made, one at each stage of construction. Your lender will pay the builder directly when you request that they to do so. You and your builder may have already agreed to how many payments will be made, the gap between those payments, their amount and when they are due. The lender simply makes sure that these payments are made when stipulated. Different lenders have different processes in place with funding construction projects. As a general rule most lenders work off six stages 1. Slab 2. Brickwork/Framing 3. Lock up 4. Internal Finishes 5. Final Finishes 6. Fencing/Landscaping etc Before the lender allows you to begin construction you & your builder will need to provide them with the following documents: 1. Signed building contract. 2. Council approved plans. 3. Construction certificate (NSW) 4. Builders Insurance (certificate of currency). 5. Builders Indemnity / Public Risk Insurance ($5 million minimum for most lenders). Some lenders will allow you to engage other contractors for works completed outside of the contract . You will need to organise quotes and invoices from these contractors. Good luck with your negotiations with the builder and lets us know if you need any further assistance/info. Norman Isaac The biggest challenge will be if you take out a loan and then run out of money - you'll have an incomplete security and lenders do not like this so you can get stuck.… 2 18894 Hi, you've probably already resolved this, however, Commbank will probably pay the funds to you after you send evidence the work is done regardless the change in the quotes. 1 35189 How much are you ahead in payments compared to where the build is at? Have you fully drawn down the loan? 5 11842 |