Home Loan Financing Explained: Borrow to Build, Renovate, Extend or Buy Off-Plan

While some prefer existing homes – perfectly matched to their needs and requiring no major updates – others may want to buy off-plan, build from scratch, renovate or even extend a property.

Rhys Dyer, CEO of ooba Home Loans says that in a competitive buyers’ market, there is something for everyone and he urges potential homebuyers to weigh up all the options available to them. “In a prolonged buyers’ market, there are plenty of options available to customise your dream home to your exact specifications. This also allows you to cash-in on a higher return later down the line when selling.” Naturally, there are a lot of factors to weigh up when considering these options – one of the most important being centred around finance. Dyer breaks down the financing options available as follows:

Building loans explained

“A building loan is used to finance the construction of a home on vacant land, or to finance renovations and/ or extensions to an existing home. Unlike a home loan, the bank pays out the building loan in stages and only as each phase of construction is completed.”

The application and approval process for building loans is similar to that of standard home loans so it’s strongly advised that homebuyers work alongside a credible bond originator like ooba Home Loans throughout the process. “You should still shop around for the best deal on a building loan by comparing quotes from all the major banks.”

When applying for a building loan, Dyer explains that you will need the following:

1. A credit record of 620-plus: “You can check your credit score using a free online service such as ooba Home Loan’s Bond Indicator.”
2. Draft plans for the construction taking place: “This includes approval by the municipality, the materials being used and the budget assigned to each portion of the project.”
3. A signed agreement: “Between yourself and your contractor of choice.”
4. Proof: “The banks require proof that the contractor is registered with the National Home Builders Registration Council (NHBRC) and is covered by Contractor All Risk Insurance Cover.”
5. A deposit: “It’s advisable to have a deposit of around 10% in place should you not be approved for a 100% home loan.”
6. A lien waiver: “This is provided by the builder to confirm that they waive all rights to the property, any materials and labour used during construction.”

“It’s crucial that you partner with a reliable contractor with a sound track record and strong financial backing. You will be working with them over a long period and they will be required to fund the materials and carry out the project upfront” says Dyer.

Refinancing and registering a second bond to renovate or extend

Should you wish to renovate, extend a home or even install alternative energy such as solar power at your existing home, you may need to apply for home loan
refinancing.

“The home will be revalued and your credit history and affordability will once again be reviewed. If you are borrowing a portion of the original home loan or accessing funds registered for future use, the funds will be made available immediately after approval. Alternatively, should you wish to register a second bond, the funds will be payable after the bond is registered at the deeds office, which could take up to six weeks.”

Important to remember is that further costs will be involved when registering a second bond. “This includes a second bond registration, VAT and the deeds’ office
levy,” adds Dyer.

Going off-grid?

There is currently high demand for load shedding relief solutions such as solar power. “More South Africans are looking to sustainable energy solutions that offer
long-term cost savings – not forgetting a higher return on investment when you do decide to sell,” says Dyer.

And while homeowners have expressed interest and see the clear benefits, finance has been a key barrier to entry. “You are looking at a price tag of R100 000-plus –depending on your requirements.”

However, ooba Home Loans’ latest offering allows homeowners to use the equity intheir home loan to finance a solar solution. Dyer explains: “We have partnered with Hohm Solar to make load shedding relief solutions accessible to our customers. We offer various modular battery backup solutions to suit your pocket – from as little as R900* per month on your monthly bond repayment. These modular systems can have solar panels added now or later – depending on your requirements.”

Off-plan financing explained

Dyer explains: “New-build homes (also known as buying off-plan) are appealing to buyers for a number of reasons. For starters, repairs and redecoration costs should be minimal for the first few years and, if the property is built to the correct standards, homeowners can enjoy lower running costs and energy bills.”

Other benefits when applying for an off-plan home loan include no transfer duty costs and reduced VAT payable. “Transfer duties are only paid when a property
changes ownership. However, in the absence of transfer duty, you will be required to pay VAT which will still be less on a new build than if you were buying an existing property.”

Dyer says that the home loan application process for an off-plan property works in the same way as a standard home loan application process. “We can assist by
submitting your home loan application to multiple banks, allowing you to compare deals and get the best interest rates on your home loan.”

With all the options available to buyers today, Dyer believes that now is a good time to a finance a home – no matter your preference. “Whether you want to renovate, build from scratch, extend or buy off-plan, there are a host of finance options available to you. Today, we have the resources in place to help make your dream of homeownership a reality.”