The 5 things you need to tell your builder – #2
In our last blog, we looked at the first of five things that you need to tell your builder – your budget. This is how much you “want” to spend. This blog is part two of the series and focuses on the area of finance – or how much you “can” spend.
#2 – Finance
As your builder, the last thing we want is for you to do all of the hard yards in designing your property, selecting materials and colours and signing a contract, only to find that the banks won’t give you any money (or as much money) as you need. Having at least a finance pre-approval before meeting with your builder will give you peace of mind as to your budget and will help to save a lot of time. That’s why we are here to help you through every step of the journey.
You would have heard about the ongoing Royal Commission into the banking sector and all of the “naughty” things the banks have been getting up to over the years. This has meant a lot of bad publicity for the banks but what does it mean for you; as someone who is trying to get a loan to finance your build?
Unfortunately, the talk about town is that the regulatory authorities may step in and force the banks to tighten their lending criteria and ramp up their due diligence even further. This has already happened in response to the runaway housing market on the east coast; with APRA (the Australian Prudential Regulatory Authority) effectively putting a cap on investor lending and interest only loans. In fact, from personal experience, we have seen what used to take one week and a couple of pay slips to get a loan has now blown out to three or four months and the bank essentially wanting to know what colour underwear you will be wearing next Tuesday!
However, even with these tighter regulations and bank policies forever moving the goal posts, there are things that you can do to make applying for (and receiving) finance approval an easier process. Here is a list of things that you can have organised to make your finance journey easier:
- Keep on hand copies of the pay slips from your employer. Two of your most recent payslips is usually sufficient. If you are self-employed, you may need to provide financial statements/tax returns for the past two financial years.
- Keep a track of your income and expenses. There are now many apps on the market to help you do this. As part of the loan process, the bank may want a breakdown of how much you earn and spend each month. This breakdown may also include any assets (eg – cars) and liabilities (eg – credit cards) you have and is used by the banks to determine how much cash you have available each month to service your loan debt.
- If you are thinking of using the equity in an existing property as security, get a valuation of how much that property is worth and how much equity you will be able to access. Banks will require a valuation on the property as part of their process; but you can organise a valuation privately.
- If you do not have an existing property to use as security then SAVE SAVE SAVE! Banks are always trying to minimise their risk, so the more that you can pay as a deposit the better. Generally, banks will base your loan on a percentage of the cost of the land plus the contract value of the build.
- Speak to your accountant, financial advisor and/or mortgage broker as to what is the best option for your situation. Be proactive in searching out the best loan products on the market.