I think most people really struggle when it comes to how the banks pay builders when you have a building mortgage or bond.
Mortgage Originators understand this, but often this is lost on the client until its too late.
So here are some tips, hints, tricks etc from your favourite SA property info site!!!
TAKE CAREFUL NOTE OF THE ITEMS IN RED.
ALWAYS READ THE SMALL PRINT!!!!
BUILDING LOAN/MORTGAGE - If you have paid for the land and now want to start building, make sure if you have an ACCESS type bond, that you move your access money into a different bank account while the building bond starts, else it will be frozen. Bummer.
PAYMENTS - PROGRESS PAYMENTS
Your builder will want payments for work that he has done. This is called progress payments.
The lending bank, will make these payments to the builder:
1. After receiving a signed request form to release funds from you. You can get these at any branch or ask your mortgage originator to get them. Make sure it gets to the bank 5 days before the money is required.
2. The payment will be based on the estimated cost of building work completed.
3. The lending bank will always calculate this payment and ensure that sufficient money is retained to complete your building. - They look after you.
4. This retained money is calculated by the banks. They value the work against the building contract.
5. Remember, get a reputable builder BECAUSE the bank will not pay for poor workmanship nor will they pay for building material on-site.
6. The bank WILL ONLY pay on the assessors amount not what you or the builder estimate (So dont ask for more than what has been done).
7. Never, never, never - sign a blank progress payment form and give it to the builder.
8. Its good to have a solid honest payment relationship with your builder, because he will always want payments. YOU ARE RESPONSIBLE FOR THIS - NOT THE BANK.
9. Normally 3 to 4 progress payments to complete your mansion.
SO IS THIS ALL I AM LIABLE FOR; OR ARE THERE OTHER COSTS RELATED TO PROGRESS PAYMENTS? YES YES YES YES YES
NOTE: Interim interest is calculated on each of these progress payment amounts. This is over and above your loan.
WHAT TO DO:
1. Because part of your original loan money will be used up by interim interest you may not have enough money from your loan.
2. Make some partial payments to cover the interim interest as soon as the first progress payment has been made by the bank.
3. Or you must save some money and keep this as a provision to cover the interim interest since this can add up over the building period.
4. Dont get caught having to find a portion of the final progress payment from other funds.
Progress payments may differ from the actual cost versus the banks estimated cost.
Keep some funds available right up front before you start building, to overcome a possible shortfall.
Why the shortfall occurs is normally due to:
1. Loan you request is less than the contract price.
2.The builders contract price is LESS than the banks estimated cost to complete the building.
So remember that the bank, in the case of a shortfall, will insist that you have funds from other sources and these funds must be applied to the property prior to the Bank considering progress payments against the bond.
When the builder completes the contract and asks for final payment:
1. Check that you are 100% happy.
2. Only then sign off your happy letter for the bank.
3. get your certificate of occupation from the local authorityIn addition, a signed copy of the certificate of occupancy, which is obtainable from the local authority
4. Lastly CHECK if the banks requested anything else when they granted your loan.
READ the SMALLPRINT
Then the last payment will be made.
Simple - HA! Never. Enjoy your mansion.