News

What you need to know about applying for a building loan

Private Property South Africa
Press |
What you need to know about applying for a building loan

Building your own home? These are the documents you need when applying and the important factors to be aware of.

If you are fortunate enough to own a piece of land in an urban area or prefer to buy a stand and build the house of your dreams from scratch, there are a few important factors to consider when applying for a building loan from your lender.

Marius Marais, CEO of FNB Home Loans, says although the process of securing building finance differs slightly from a traditional home loan, it is still governed by the National Credit Act and the same banking policies and lending criteria still apply.

Documents you need when applying for a building loan

  • A quotation from a builder who is registered with the National Home Builders Registration Council (NHBRC)
  • Building plans and a supporting schedule of finishes
  • A contract between the builder and yourself,” says Marais.

Furthermore, a minimum 10% deposit which takes into consideration the value of the land and in addition a contract amount may be required upfront.

“Once the building loan application has been approved, the land transferred into your name and the bond registered, there a few important factors that you need to take note of,” explains Marais

Important factors that you need to take note of after your building loan application has been approved

  • The loan will be offered in stages, through progress payments, until the building has been completed. The facility will then be converted to a normal 20 year home loan.

  • Building must commence within 3 months after registration of the bond and completed within 12 months to avoid penalties.

  • The building contractor should be insured for unforeseen events through Contractors All Risk Insurance Cover for the duration of the project. The onus falls on you to take out Home Owner's Cover once the building has been completed.

  • The builder must enrol the project with the NHBRC which provides a five year warranty over structural defects from the date of occupation.

  • It is your responsibility to ensure that the builder understands and complies with all the bank's conditions of the loan.

  • Prior to any progress payment being paid out by the bank, a valuer should inspect the building progress and report back to the bank.

  • You can apply for progress payments at any stage during the construction process provided that sufficient work has been completed and the bank is satisfied with the progress. A maximum of six progress payments are often allowed, based on the work completed. Additional progress payments will attract a fee.

  • You need to pay interest on the drawn building loan balance until the project is completed, with normal interest payable thereafter.

  • Once the building work has been completed you need to confirm that you are satisfied and at this point you could provide a list of snags to be fixed. It is important that this is communicated to both the builder and the bank.

  • A retention amount may be withheld in order to ensure that the builder completes the outstanding work.

It is advisable to consult an attorney prior to signing any agreements with the builder, as these can potentially work against you in future.

“Should you decide to change the building contractor or make any drastic changes to the original plan, you need to inform your bank. The bank may re-assess the facility and either approve or disapprove the request, based on how it impacts the overall building costs and market value of the property,” concludes Marais.

Related Articles

Advice for building a new home
Sarah-Jane Meyer | 28 Aug 2019

Advice for building a new home

Taking on a building project may seem daunting, but if you do your homework beforehand and keep following up throughout the construction phase, you can make it work.

Tips for buying a property to renovate
Press | 03 Jul 2018

Tips for buying a property to renovate

Many buyers on a tight budget consider buying an older house and fixing it up. If you’re considering doing this, here are some pointers on buying a house to renovate.

Home renovations: These are the jobs that don’t need building approval
Press | 17 May 2017

Home renovations: These are the jobs that don’t need building approval

Building from scratch or adding on to a property can give homeowners the opportunity to personalise their home, but the correct procedures must be followed.

sample image of property alerts

Get instant property alerts

Be the first to see property alerts for your area.
;