Article: Future-Proof Building
Before You Build Or Renovate
Financing Your New build, Extension Or Renovation
Helpful points on getting finance for your building project from the National Bank.
Building or renovating your own home can be a viable alternative to buying an existing one, but the process behind getting finance can be quite different.
The first step is to figure out how much you can spend, and then find out what you can get for that money. This means starting with your budget. This process will help shape your ideas on what kind of home you want and can afford to build.
Basically, your budget will be based on what’s left after you deduct your expenses (food, transport, insurance, clothing, etc) from your current income (like wages, salary, investments or any other income source). How much you can afford to spend on a home is the surplus after all your other expenses have been accounted for. Work your budget out early and keep a copy of it, as you will need to use this information when you apply for home building finance.
When calculating these figures, it’s worth erring on the side of caution because miscellaneous expenses can quickly add up. Use this home loan budget planner from the National Bank to help you work out your budget.
How Much Can You Borrow?
The exact amount you can borrow depends on your ability to repay, the value of the land and building plans, and your deposit. If you’re renovating, you may be able to top-up your existing home loan or borrow based on your home’s value after the renovations.
Before talking to your bank, you’ll need to know what your project will cost. Get started by drawing up detailed plans of what you’d like to achieve – if you’re making any structural changes it may be necessary to engage a draughtsperson or architect.
Once this is done, you’ll need to get cost estimates for the work.
What Do You Need To Do Or Think About Next?
• Before you start, get a valuation that shows how much the home will be worth when it’s completed. This will help your bank determine how much you can borrow.
• At each stage you’ll need to have the work certified as completed to a certain value – if you’re using an architect or designer to manage the project they’ll usually do this. You may also need to have interim valuations done at each stage – your bank can advise whether this is required or not.
• While the loan to cover your project is approved for the full amount, check if your bank allows you to draw the money down in instalments as the building work progresses. This could help you to save on interest.
• Check with your bank or mortgage broker for advice on the best loan structure for you.
What Documents Will Your Bank Need To See?
Before building begins, your bank will need to see:
• The Sale and Purchase Agreement for the land
• A Registered Valuer’s report of the estimated value of the finished home based on the plans
• A copy of the plans
• A copy of the building contract
• A copy of the building consent and any resource consents.
For further information, talk to a National Bank Lending Specialist or Mobile Mortgage Manager.
This information is an overview to help you get started only and you should obtain professional advice that is relevant to your personal situation. The National Bank’s lending criteria, terms, conditions and fees apply to all loans. For borrowing over 80% of a property’s value, a low equity premium on a graduated scale applies.
