more-faqs

The following FAQs are associated with construction loans

We pre-purchased and paid for the windows, kitchen cabinets and appliances and they are sitting
in the garage. Can the Valuer take this into account?
Until the various construction elements are fixed in place they do not form part of the lenders
security. The simple measure of this is the answer to the following question "can the items be
easily removed from the site without damaging the property?" If the answer to this is "yes" then,
legally, the items do not form part of the mortgagee's security.

We need to pay for the building kit-set prior to construction, will the mortgagee (lender) take
security over this?
This is always a problem for lenders and is really an extension of the previous question. Until the
kit-set is nailed in place and forms part of the building it cannot form part of the security for
mortgage purposes. Some lenders may make an unsecured loan over it, but that is between you
and your lender. A similar problem arises with re-locatable houses. These do not form part of the
lender's security until they are affixed to the site.

We agreed to pay the builder 50% of the contract price upon completion of the framing, why has
the Valuer only authorised a payment of 30%?
To give an extreme example of this, you could agree to pay the builder 100% of the contract price
before the job begins. However most people would agree that this would not be prudent. The
Valuer is legally obliged to inform the lender how much value is affixed to the site at any given
stage of construction. The value in place is guided by construction tables rather than what the
client has imprudently agreed. For this reason we advise you to seek professional advice PRIOR to
agreeing to a progress payment schedule. The same advice doubly applies even if you are paying
cash for the project.

I am tradesman and with a little help from my friends, I can build my house for a lot less than the
usual construction cost, why has the Valuer adopted a standard construction rate per square
metre as the Cost to Complete?
The Cost to Complete advises the lender how much they would have to pay another contractor to
finish the project in the event that the client tradesman abandoned the job. A full fee would be
payable because the lender has 'no friends'. The importance of the correct Cost to Complete
figure is recognition that a partly completed project will always sell for less than it's true value. If the
lender wishes to recover their loan monies they may need to complete the project to release the
full market value.

I need a Completion Certificate from the Valuer, so my bank will release the remainder of my loan
monies. I still need to have the driveway and fences completed. Will the certificate be issued?
The simple answer is NO. The Completion Certificate is only issued when all contractual matters
have been completed in a satisfactory manner. The Valuer can issue an interim progress report
less the two items yet to be completed. In this case these are the driveway and fences.