Building your home? Think again! (Part Seven)

Apr 03, 2011 News

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So, your loan has been approved!!!

By Leonard Gildarie

In a recent email to this column, an individual interested in building a home, asked if I knew any money lender. Sorry, I don’t. But the last time I heard, a number of them are operating on America and Longden Streets, in the city.
Last week, we examined a number of issues, including strategically placing your doors and windows away from the elements.
This week, in response to more information on mortgages and the building processes, we are publishing a copy of the New Building Society (NBS) Summary of Estimates.
This form is a valuable tool, similar to ones used by commercial banks, to assess the application. It can help weed out the possibilities of a ‘Smart Alec’ attempting to inflate prices.
NBS and the commercial banks are very much aware of prices for the critical items, like cement, steel, sand, and roofing materials. Although, you may get away with a few hundred dollars here and there, my simple advice is not to do it. It can affect your processing time, also, since the mortgage folks may call you and ask you to do the estimates all over again.
However, it can and should be used by the home builder to also track the progress of the structure and costs at the various stages.
Keep records
That reminds me. It would be a good idea to invest in a journal…even a notebook will do, or for the more modern of us, a PC or Laptop could work.
I am especially directing these articles to the folks who will be drawing down on their first mortgage. If you will be working on a tight budget every cent counts, and costs can escalate if instead of buying that toilet bowl, you decide to buy a Jacuzzi…stick to the plan.
You need to keep a detailed record of every dollar that is spent, since the bank or NBS would only be releasing what has been approved.
In other words, if you have budgeted $1M for the foundation, according to the Summary of Estimates which you would have submitted at the application stage, strive to ensure that this will suffice.
It cannot be emphasized more, the need to stick to a budget. Every section of the building, from foundation to painting, will cost you. That is why, in the initial stages, you have to sit down with your contractor or somebody knowledgeable to work out those estimates. Every pin (read nail) that is to be bought will have to be included in the summary form.
Even extending your home by 12 inches will impact on the costs.
Approval
Last week I indicated that we will be delving into the scenarios that will play out when you have applied for your mortgage and it has been approved.
The applicant will be required to sign an acceptance form which in the case of NBS is then dispatched to the society’s lawyers, along with the Original Transport, Certificate of Title or Lease. At this point, the applicant is expected to pay the legal fees.
For NBS, for up to $4M, the legal costs will be just over $45,000 while it can reach over $90,000 for an $8M mortgage.
Upon the payment of these fees, the lawyers prepare the mortgage documents which will be signed by the applicants. These documents, which basically prevent the landowner from selling it without permission from the bank, are then filed at either the Deeds or Lands Registry. This process can take a few weeks.
In the case of Transport matters, these have to be advertised in the Official Gazette, where a mandatory two weeks claims and objections period becomes necessary.
Regarding Certificates of Title, the lawyers for the banks or NBS will uplift these when they are ready and forward them to mortgage departments. Within days, the applicant is informed and the funds are made available for disbursement.
Tranches
If you are applying for a mortgage, none of the banks will disburse the entire amount that has been approved. For example, for an $8M mortgage, the monies could be released in $1.5M tranches, starting with the foundation. And then these tranches are only disbursed once the banks or NBS are satisfied that you have completed those phases according to your estimates. Not building to the estimates can, and will, cause the release of monies to be delayed.
One more thing. You will be required to take out insurance for the property. This can average around $40,000 annually for a mortgage of $8M.
I don’t want to make this particular piece too long since we are printing the Summary of Estimates, a form that many will be seeing for the first time. It is a valuable guide.
If you have been reading the past articles, you would know immediately what the next step is once you collect that first tranche. The work now begins.
Next week, we will be looking at some challenges at the foundation stage.
Remember, you can contact me via email at [email protected] or call 225-8491.

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