Borrowing to Build?

It’s hard to find the perfect home but when you build you’re the one making all the choices, meaning you get what you want from day one. And with First Step Home Loans by your side helping you work through the process, it’s an easy decision to say Yes to building.

Types of Building Contracts

With so many banks in New Zealand, there are many options for building contracts and each of these banks treat their building loans differently. That’s why First Step Home Loans are here to help choose which loan works best for your situation. See the main attributes of each building contract type below.

With a ‘Turn Key Contract’, you’re essentially having a house built for you and project managed by a developer. The land and property is owned by the developer and they finance the build, with you providing a 10% deposit to secure it. The ownership of the title of the property is transferred once the house is built.

This means no interest or loan repayments required until the property is completed, settled and ready for you to turn the key in the door, giving you extra time to save.

Benefits of Turn-Key Contracts

  • Show home on site so you get a look and feel for the finished product.
  • 10% deposit required for finance (which is half the amount of a standard home loan deposit).
  • No interest or loan repayments required until the property is completed and settled.
  • No large upfront costs.
  • You don’t have to pay progress payments.

A Fixed Price Contract is where a builder provides a single fixed ‘all inclusive’ price to complete a build deal. Your builder will manage the whole building project including getting consents, working with architects/designers and organising all subcontractors. Thus taking over all management until a code of compliance has been issued, then you will have a property for the bank to use as security. We will work closely with you helping and advising on steps and processes that will need to be considered before building starts.

Benefits of Fixed Price Contract

  • Builder project manages until a code of compliance is issued.
  • Builder organises consents and deadlines with sub-contractors.

A Construction Loan is a short-term loan used to pay for the building of a house, normally a term of 12 months. As work progresses, money will be paid out in stages as needed. These stages, such as foundation being laid, framework going up, etc are normally set out before construction begins. To receive a construction loan your bank will require a 20% deposit, but in some instances you may still be able to receive a construction loan with a 10% deposit. Banks will require a strong application (income, credit history, bank account conduct) to approve a loan with a 10% deposit, this is done on a case by case basis.

Benefits of a Construction Loan

  • During the project you only pay interest on the money already paid out, instead of paying interest on the whole lot straight away.
  • A construction loan is usually on a floating interest rate, which is great if the current interest rate is low.

You are responsible for project managing the whole building process yourself if you have labour-only contracts with the tradespeople you hire. The tradespeople will only be responsible for the trade you have hired them to complete.

Progressive payments will only be paid out to invoices you already have and are always required to obtain quotes for materials and all sub-contracting costs upfront.

This form of contract is only best for those experienced in the ins-and-outs of construction and are limited to the land value only unless the buildings are already permanently fixed to the land. Not recommended for a first home builder.

Benefits of Labour Only/Partial Contracts

  • During the project, you only pay interest on the money already paid out.

With a ‘Turn Key Contract’, you’re essentially having a house built for you and project managed by a developer. The land and property is owned by the developer and they finance the build, with you providing a 10% deposit to secure it. The ownership of the title of the property is transferred once the house is built.

This means no interest or loan repayments required until the property is completed, settled and ready for you to turn the key in the door, giving you extra time to save.

Benefits of Turn-Key Contracts

  • Show home on site so you get a look and feel for the finished product.
  • 10% deposit required for finance (which is half the amount of a standard home loan deposit).
  • No interest or loan repayments required until the property is completed and settled.
  • No large upfront costs.
  • You don’t have to pay progress payments.

A Fixed Price Contract is where a builder provides a single fixed ‘all inclusive’ price to complete a build deal. Your builder will manage the whole building project including getting consents, working with architects/designers and organising all subcontractors. Thus taking over all management until a code of compliance has been issued, then you will have a property for the bank to use as security. We will work closely with you helping and advising on steps and processes that will need to be considered before building starts.

Benefits of Fixed Price Contract

  • Builder project manages until a code of compliance is issued.
  • Builder organises consents and deadlines with sub-contractors.

A Construction Loan is a short-term loan used to pay for the building of a house, normally a term of 12 months. As work progresses, money will be paid out in stages as needed. These stages, such as foundation being laid, framework going up, etc are normally set out before construction begins. To receive a construction loan your bank will require a 20% deposit, but in some instances you may still be able to receive a construction loan with a 10% deposit. Banks will require a strong application (income, credit history, bank account conduct) to approve a loan with a 10% deposit, this is done on a case by case basis.

Benefits of a Construction Loan

  • During the project you only pay interest on the money already paid out, instead of paying interest on the whole lot straight away.
  • A construction loan is usually on a floating interest rate, which is great if the current interest rate is low.

You are responsible for project managing the whole building process yourself if you have labour-only contracts with the tradespeople you hire. The tradespeople will only be responsible for the trade you have hired them to complete.

Progressive payments will only be paid out to invoices you already have and are always required to obtain quotes for materials and all sub-contracting costs upfront.

This form of contract is only best for those experienced in the ins-and-outs of construction and are limited to the land value only unless the buildings are already permanently fixed to the land. Not recommended for a first home builder.

Benefits of Labour Only/Partial Contracts

  • During the project, you only pay interest on the money already paid out.

Make sure your finances are all lined up before you commit to signing a building contract. You also need to make sure the timing of payments will work with your loan agreement. We can help with all of those details.

Always have a buffer!

Always have a buffer! Building almost always goes over budget due to unforeseen things - be prepared for this. Know how much wriggle room you have. Ask yourself, ‘What can I compromise on and what can’t I?’

Know what you’re entitled to

Know what you’re entitled to, is it your first home? You may be entitled to the homestart grant - check out more info about that here to check your eligibility.

Picking the right builder

Picking the right builder is very important! Do as much research as you can; credentials, references, past work, style, personality and price. Don’t be afraid to ask questions!

Communication is key

Communication is key, don’t stand back - get involved and get regular updates on the progress of construction.

Read everything at least twice

Read everything at least twice, and make sure you understand it! You don’t want any surprises - if in doubt get your lawyer to check over it.

Preparation is key

Preparation is key - it saves time and money in the long run. Do your research now before you break ground on your site. That’s why we’re here! Get in contact with us now to start the journey towards your new home!

Use the calculator below to get an estimate of how much your repayments could be. Enter the loan amount you are considering borrowing, the interest rate and the period of time in which you will pay off your home loan (loan term).

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Years to Pay
* This Calculator is an estimate of repayments only. For an accurate estimate on how much your repayments will be, please contact our team.
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Get in touch with us today about a construction or building loan.