What you need to know when applying for a building bond

The first and probably the most important thing that you need to know when applying for a bond either to purchase vacant land or for a building bond is that the bank does not finance the full purchase price of vacant land. In order to purchase vacant land you must be prepared to pay a deposit of between 10% to 30% of the purchase price. The exact amount of the deposit will depend on various factors such as your credit worthiness, your financial position, the bank’s assessed value of the land and your intention with the land i.e. are you planning on also building on it immediately and have applied for a building bond or are you just buying vacant land with no immediate plans to build thereon.

Documents required for a building Loan Application

• Building Plans;
• Building Contract with your builder;
• A copy of your builder’s registration certificate with the National Home Builders Registration Council (“NHBRC”).

 

National Home Builders Registration Council (“NHBRC”).

• The NHBRC certificates are sometimes referred to by the generic term “NHBRC registration certificates”.
• These are however, two different and distinct certificates:
• In respect of the Builder-The NHBRC registration certificate is the certificate which confirms that your builder is registered with the NHBRC as a home builder.
• In respect of the Building- The NHBRC residential enrolment certificate is the certificate which confirms that your building has been enrolled with the NHBRC and accordingly that the structure and quality of the building will be insured by them once is has been built.

The bank will normally pay out the loan in 2 separate amounts: the cost of the land and cost of the building. The attorneys appointed to register the bond will, however, register only a single bond for the combined amount. The loan amount is never paid out before the bond is actually registered in the Deeds Office.Normally the purchase price of the land is paid out on registration, but the cost of building is retained in your bond account and will be paid in “progress payments” as the building progresses.

Again, depending on various factors such as your credit worthiness, your financial position, the bank’s assessed cost to complete the building and the actual cost as per your building contract, the bank may or may not finance the full building price. This means that over and above the deposit you may have had to put down to purchase the land, you may also need to pay a deposit to your builder as an initial payment before the bank will allow you to start make progress payment draws on the amount available to you for the building.

More documents required when you sign the bond documents:

• A copy of your Builder’s NHBRC registration certificate;
• The NHBRC residential enrolment certificate for the Building itself;
• The builder will have to sign a Waiver of Lien;
• A copy of the Surveyor General’s diagram for the property;
• A copy of the Section 82 Certificate which is issued by the local municipality to the original developer of the township to confirm that the basic services for water, sewerage and electricity have been supplied to the township in which your property is situated; and
• Any other certificates / documents that the bank’s assessors may require e.g. zoning certificates (these will be specified as special conditions on the bond grant at the time the bond is approved).

 

Paying the Builder:The bank controls the process

Once the bond has been registered and you are ready to start building, in order to be able to apply to the bank for progress payment draws you will first need to have paid the builder any shortfall between what the bank has approved as the amount available for the building and the actual building contract price. Thereafter as further work on the building is completed, you apply to the bank for progress payment draws.

As each request for a progress payment draw is made, the bank will send out an assessor to view the progress of the building to ensure that the amount you are requesting corresponds with the value of the work carried out on site. If the assessor agrees that the amount requested corresponds with the value of the work completed, the bank will approve the payment and pay the same over to your builder.

 

In order to make the request for a progress payment draw, you will be required to submit the request to the bank on the form approved by the bank, together with the following documents, these will include:

• A copy of your building plans, approved by the local municipality;
• Architect’s certificate;
• Engineer’s certificate;
• Proof that your builder has “Contractor’s All Risk” insurance; and
• Any other certificates / documents that the bank’s assessors may require (again these will be specified as special conditions on the bond grant at the time the bond is approved).

 

Once the building is complete and you are ready to pay the builder his final installment, you will need to submit the request to the bank on the form approved by the bank, together with the following documents, these will include:

• Confirmation, in the form approved by the bank, that you are satisfied that all improvements have been completed to your satisfaction (this is what is colloquially called the “happy letter”);
• Occupancy certificate issued by the local municipality;
• Engineer’s certificate;
• Roof certificate;
• Glazing certificate; and
• Any other certificates / documents that the bank’s assessors may require (again these will be specified as special conditions on the bond grant at the time the bond is approved).

 

In terms of repaying the loan granted, the amount which you repay every month is based on the capital amount actually paid out by the bank. This means that initially you will only be repaying the amount advanced to pay for the purchase of the land. As progress payment draws are made, the monthly repayment amount will increase to accommodate each further amount advanced under the loan. Once you final progress payment draw has been made you will start repaying the full capital of bond amount.