2. Purchase property and build immediately or a few years later Explore your Real Estate Options Armed with the knowledge provided by the lending officer you can now peruse the various mediums for properties within your price range. There are usually two options: 1. Purchase a completed residence Many persons prefer to avoid the challenges that may be experienced when building a home and opt to purchase a completed residence. The fear of having to deal with unscrupulous contractors, cost overruns, material & water shortages, and emotional stress cause persons to select this option. Though this is a less stressful option, there are also some setbacks namely: • You will more than likely pay what the house is valued at and it will take some time for you to acquire equity in that property which can be used for home improvements in the future; • The design, layout and appearance of the property will be that of someone else not yours. In short since you had no input in the design of the house you will have to adjust unless you decide to remodel in a few years; and • It will take some time for you to discover inferior quality construction by which time you may have little or no recourse. 2. Purchase land and Construction This option is usually the more challenging choice as there are a number of steps involved and related costs. • An architect has to be engaged to design the house to your specifications and within your budget; • Once the plans have been finalized a quantity surveyor should be engaged to estimate the cost of construction. (Check your bank to ascertain who is on their approved list); • The plans must then be submitted to the various authorities for approval. The Bank will not move forward with an application unless the plans have been approved; and • Once your plan has been approved an estimate for construction should be obtained from a reputable building contractor. Quotations should be obtained from at least 2-3 contractors and any large variances with the estimates provided by the quantity surveyor should be investigated. Additionally it would be wise to request references from the contractor’s last two projects. You may wish to have a discussion with the home owners about their experiences. This would also give you a chance to assess the quality of their workmanship. Commence the Application Process The application process is not much different when applying for any standard loan. In addition to the usual financial information, your lending officer will also request the following: • Basic requirements inclusive of the deposit amount; and • A copy of the sale agreement to purchase the land or house & land ( if already constructed);
• Copy of the most recent land register of the property to be purchased (not more than 3 months old); • A copy of the survey plan for the property; • A valuation of the land or house & land from an approved appraiser; • A quotation for comprehensive insurance on the property or building; and • The National Insurance , Income & Property Tax Clearances for both the vendor and purchaser
Once the above is obtained please ensure the following: • A copy of the approved plans; • A copy of the construction agreement with the contractor; • The value of the property upon completion to be included in the valuation; and • Quotation for all risk insurance while the building is under construction. Understand the Loans Process Begin Drawing on Your Loan Prior to the first drawdown on your loan, a copy of the contractors all risk insurance or prepaid home owners insurance policy, to include “builder’s risk coverage “must be in place. This coverage protects you from financial responsibility for any damage, theft or liability that may occur during the construction period which is normally 6-9 months. The loan will be drawn down in stages as outlined in the commitment letter. Generally a home under construction requires four to six drawdowns based on inspections carried out by your quantity surveyor. To cover these inspection costs, appropriate funds will be disbursed per a predetermined arrangement with your builder/contractor. Your monthly payments during the construction phase are interest-only and are calculated based upon the amount of the loan drawn down. These payments continue until construction of the building is complete. Cost Overruns It’s not uncommon for a first time homeowner to make alterations or additions to the original plans when building a new home. You should consult your lending officer prior to these changes as any increases must be borne by you unless you can qualify for additional funds. Which will be included within the total amount of the loan. These changes should not exceed more than 30% of the original plan or planning approval will have to be obtained. The construction period concludes when the bank receives the final completion certificate from the Quantity Surveyor and your keys from the contractor. The agreed repayment for your mortgage loan will commence within 45 days of completion. Congratulations! with key in hand you are now a proud Home Owner. ¤
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