For many people the process from finding a lender to walking into your new home can seem confusing. It doesn’t need to be. Here’s a simple 10 step process to finance a new home build from start to finish.
1. Talk to your broker not the bank
Many people go directly to the banks for a loan to finance a new home build but this might not be your best move.
A mortgage finance broker can provide better choice because they have access to a wide range of lenders. And unlike the banks, your broker is working for you!
Your finance broker will work to understand your needs before they approach lenders. Their aim is to ensure you stand the best chance of getting the right deal at the right rate in the right time.
2. Lodge your Application
Once your broker understands your needs they’ll search for the right lender and make a product recommendation.
But who is the right lender to finance a new home build? This depends on your individual situation, for example:
- How much deposit do you have?
- How quickly do you need approval?
- What historical financial information is available?
- Which institutions are offering the best rates and turnaround times?
- Which banks are actively looking for mortgage business in the local market?
- Which lenders are most favourable in terms of approvals based on your situation?
It’s a finance broker’s job to understand which factors are important to ensure they present the right product from the right lender, every time. Notice how this is different to the banks.
When you’re happy with a particular product, the broker will lodge an application using their refined process for success.
3. Getting Pre-Approval
Getting pre-approval for the loan is the next step. Pre-approval is essentially an indication the lender is willing to consider your loan once you submit the completed formal application for finance.
Whilst it’s not a guarantee of finance from your lender, with a pre-approval you’ll have a better idea of what you can afford to build. This means you won’t waste valuable time or risk disappointment looking at houses outside your price range. Having a current pre-approval should also speed up the process when it comes to lodging for formal finance approval with the same lender.
The lender will grant pre-approval based on your current financial situation and usually remains valid for about three to six months. Assuming there’s no changes to your financial circumstances, you’ll be well on your way to approval!
4. Lodging for Formal Approval
One you’ve ready to commit to building your new home, it will be necessary to apply for formal finance approval. Formal finance approval is the lender’s offer to lend you a specific amount of money for your new home.
To get the loan formally approved requires a few more steps, such as as valuation of the property. A copy of the Certificate of Title / Offer and Acceptance for the land as well as plans and specifications of your new home are also required. If these aren’t available your broker will collect other info such as current pay slips.
5. Formal Approval
When the lender is satisfied with your ability to service the loan, they will issue a formal offer letter. Your finance broker will review the letter and forward it to you, your builder, land agent and settlement agreement (as necessary). Loan documents will then be drawn up for you to sign.
Once finance approval is granted you can go ahead and meet with your builder to choose and agree on the details of your new home, including any variations to the design. Your finance broker will ensure that any potential further costs associated with variations are covered in your loan in the beginning.
This will ensure your loan amount will be sufficient to meet the builders progress claim when it’s provided to your lender. This is important so there are no nasty surprises or a shortfall in funds when each progress claim is made!
If you are also buying the land on which your new home will be built, the purchase of the land can be completed once finance approval is granted. With the assistance of your finance broker, your settlement agent will arrange the transfer of the land into your name. The property is officially yours!
Upon receipt of settlement confirmation, construction begins. Your finance broker will make sure that the right people get the right paperwork as soon as they need it. Throughout the construction process this will ensure you avoid any unnecessary delays to progress payments by your lender (and potential interest charges from your builder).
9. Get the Keys
When you have made your final inspection of the finished home, and the lender is satisfied the builder has completed the home as per the contract, the final progress payment will be made. The builder will handover the keys to your new home.
10. Enjoy your new home
Enjoy your new home with a stress-free mortgage!