All posts by Cheryl Daniels

New building built _ Turn-Key or Progress Payment

The Difference Between Turn-Key and Progress Payment

Turn-key and progress payment contracts are the two different types of construction contracts available when you build a new home. In most cases, the building company will only offer one or the other, not both.

What are turn-key and progress payment contracts?

Why have we chosen this topic? New builds are becoming very popular lately. The government is very keen to encourage the creation of new homes. So they’ve created some good incentives to get people building.

The big incentive is the ability to get a loan for a new build with as little as 10% deposit. This is a huge drawcard, especially for first home buyers. The national average for house prices went up by nearly 30% in 2021. With house prices so high, saving for a 20% deposit for your first home is a big challenge for most. Being able to get a new build property with a smaller deposit allows many first home buyers a chance to get a home much sooner than they otherwise would.

The government is also keen to encourage property investors to buy new builds rather than existing homes. In addition to lower deposit requirements, new builds are exempt from some investment property taxes.

What is a turn-key contract?

With a turn-key construction contract, you pay a deposit of 10% or so upfront. The balance is due once the build is completed.

Turn-key contracts are attractive to buyers as they’re nice and simple. You don’t have to go to the bank to draw down payments throughout the build, and therefore don’t have to pay interest until the build is completed and has been paid for in full.

Turn-Key and Progress Payment
Drawing / Visualising a new home with Turn-Key or Progress Payment

What to be aware of with turn-key contracts

Turn-key contracts are generally a bit more expensive than progress payment contracts. This is to compensate the developer for taking on the financial burden of all costs during the build.

To get a turn-key contract you need an offer of finance from a lender. The offer is usually valid for a maximum of 1 year. Construction can take longer than this, in which case you would need to reapply for finance. There is a risk that at that time you no longer meet the current finance criteria for a renewed offer of finance. Using a broker minimises the risk of finance falling through as they can help you put your best application forward and then look into other lender options if needed.

When paying your deposit for a turn-key contract, make sure that the money is going to be held in a trust. This is to protect your money in case the developer goes bankrupt during the build.

Some developers require final payment on ‘practical completion’ rather than on the code compliance certificate (CCC) being issued. This is because they have completed all the work and it can take a couple of months for a CCC to be received, a long time for a developer to wait for payment. Some banks are wary of this as it creates a slight risk for the owner and therefore the bank, however some lenders are fine about it. Tell your mortgage broker early on if your contract has this requirement.

What is a progress payment construction contract?

Just as the name suggests, progress payment contracts require progress payments on completion of each stage of the build (e.g on completion of foundations).

To fund the build, you get mortgage approval upfront, with your deposit paid as part of the first instalment. You then draw down the funds as each payment becomes due. This is done by sending the invoice to the bank, who then pay the developer. You pay interest on any funds that have been released rather than on the full mortgage amount. Unlike turn-key contracts your finance won’t expire after a year as you are actively borrowing money during the build.

New Kitchen - Turn Key or Progress Payment
Beautiful New Kitchen layout

What to be aware of with progress payment contracts

While progress contracts are slightly cheaper than turn-key, you will be paying interest on building costs during the build so any savings may be negated the long run.

As you will be paying interest during the build but not yet being able to live there or rent it out to cover costs, you need to ensure you have budgeted for interest payments during the build. Keep in mind builds often take much longer than planned.

Do lenders prefer turn-key or progress payments?

In general, lenders prefer progress payment contracts as they provide security early on in the contract. But as with anything, it differs lender to lender, with policies changing all the time.

Working with a mortgage broker is key, as they will look across the lenders to find one whose policies suit both your financial situation and the terms of your building contract. If you’re looking for finance for a new build, or for any type of mortgage, get in touch! We’d love to help.

Top Tips For First Home Buyers

This article provides top tips for first home buyers by Angela Downie at Platinum Mortgages. This blog is for first time buyers wanting to make sure they’re doing everything correctly when purchasing their first home

First home buyers are not surprisingly nervous about the large sums they need to spend on their first home. A Mortgage Adviser from Platinum Mortgages will help you understand the process involved in purchasing your first home. Furthermore, they explain some of the costs you may encounter along the way!

UNDERSTAND THE FIRST HOME BUYERS APPLICATION PROCESS

You’ve found the ideal first home, great, but you’ll need to apply for a mortgage to buy it. it. Don’t be intimidated – mortgage applications are fairly simple these days. However, there are some things you can do ahead of time to make your application process go as smoothly as possible.

  • Set up an Appointment

Contact us to set up a free consultation, skype call, or face-to-face meeting to discuss your requirements. We’ll talk about your specific situation and how we can help you achieve your goals. This discussion includes deposit requirements, whether you are eligible for a first home grant and maps the pathway to achieve your objective.

We’ll send you an email with a link to fill out your personal information online. This is something you can do at your leisure with our online services.

  • Gather Supporting Documents

First Home Loan applications require information such as statements, ID, proof of income etc. We will let you know exactly what you need to get organized for your application.

  • Application Is Submitted to Chosen Lender

Once all your supporting documents have been uploaded through your own unique portal online, your situation gets assessed. Following that, we will provide a recommendation on where we believe we will get your home loan approval or pre-approval. Your application is then formally submitted to the lender for consideration.

  • Await Approval

Depending on the Lenders workload, an outcome can take up to 5 working days. In higher volume times this may be a little longer. Once a decision comes back, we contact you and discuss the outcome or some alternative solutions if the Bank Said No!

THINGS YOU SHOULD KNOW BEFORE APPLYING FOR YOUR FIRST HOME LOAN

There’s an old saying that says, Home is where the heart is. But if you want to keep your wallet happy, then you should also think about your local real estate market. If you’re thinking of taking that next step and purchasing your first home, there are a few things to keep in mind:

  • Get your financials in order. This includes making sure you are taking advantage of all the Government help for first home buyers.
  • Speak to a highly qualified and experienced Financial Adviser, like Angela Downie at Platinum Mortgages New Zealand Limited. You will receive free mortgage advice on your eligibility to receive the grant for First Home Grants, Kiwisaver withdrawals, and other ways to save for a deposit.
  • Learn all about the home buying process as we guide you along the way, and clarify what you need.

IS IT THE RIGHT TIME TO APPLY NOW FOR YOUR FIRST HOME LOAN?

  • Many first home buyers ask when is a good time to start looking for their first home loan. Every circumstance and situation is different. There are some general rules you can follow, giving yourself the best chance of getting approval for your first home loan.
  • Another point to consider is how long a pre-approval is valid. Find out what those rules are now, by contacting us today on email via [email protected]

THE COSTS INVOLVED WHEN PURCHASING YOUR FIRST HOME

At the start, spending your commute scrolling through houses for sale and wondering through strangers’ homes at the weekend, are very low-cost activities. Once you start looking seriously, it’s a smart idea to seek professional help. Ensure you’ve got as much information about a property as possible, before you make any big decisions.

Use Recommended Professionals as part of your “Home Buying Team” is an important tip for First Home Buyers

  • Mortgage Adviser from Platinum Mortgages (Free – Paid by the Lenders)
  • Real Estate Agent (Free – Paid by the Vendors)
  • Lawyers / Conveyancer (Costs involved)
  • Building Inspector (Costs involved)

With these experts on board, you’ll be able to negotiate wisely, know about any structural or building problems prior to purchasing your first home. A good Mortgage Adviser like Angela Downie at Platinum Mortgages will ensure you’re getting a good solution on your future home loan!

Always remember, your first home will likely be one of your biggest investments ever – both financially and emotionally. The investment in professional financial services help is worth every cent! Contact us to set up a free consultation.