HOME LOAN FINANCING EXPLAINED

Borrowing to build, renovate, extend, or buy off-plan

- RHYS DYER

THERE ARE various options to weigh up when searching for your dream home. While some prefer existing homes, others may want to buy off-plan, build from scratch, renovate, or even extend a property.

There are plenty of options available to customise your dream home to your exact specifications. This also allows you to cash-in on a higher return later down the line when selling. Naturally, there are a lot of factors to weigh up when considering these options, one of the most important being finance. The various options available are as follows:

Build from scratch

A building loan is used to finance the construction of a home on vacant land, or to finance renovations and/or extensions to an existing home. Unlike a normal home loan where the funding is paid in full upon transfer of the property, with a building loan the bank pays out in stages as each phase of construction is completed.

The application and approval process for building loans is similar to that of standard home loans. However, when applying for a building loan, you will need the following:

* A credit record of 620-plus: Home loan providers will obviously want to see your track record with existing debt before they'll be willing to provide any further financing. You can check your credit score using a free online service such as ooba Home Loan's Bond Indicator.

* Draft plans for the construction taking place: This includes approval by the municipality, the materials to be used, and the budget assigned to each portion of the project.

* A signed agreement: While this agreement would be between yourself and your contractor of choice, the banks will require proof that the contractor is registered with the National Home Builders Registration Council (NHBRC) and is covered by Contractor All Risk Insurance Cover.