Mortgage - Upfront Payment

Pious14

Just got approval for a mortgage and the bank want a considerable chunk of our savings to be paid up front and used against the construction of the house. Once our funds and the mortgage drawdown reaches a certain amount our savings will be returned!! That is what the bank has lead me to believe-has anyone ever been in this situation or heard of anything similar? Dont realy want to part with my savings upfront!

uberwolf

wouldn't be uncommon in more commercial style loans.

DAT64

Hi,
I have recently got approval for a self build mortgage too. We have a fixed price contract, but the bank required the same conditions as you have we need to spend the first E15k of our savings first. I am unsure of when it will be returned to us but hopefully will get it in first few stages.
Its common enough as they want to ensure we will actually spend our money aswell as theirs!
Hope thats helps.:)

Pious14

Thanks for the replies. Our solicitor had encountered this and was worried how it looked as he had not seen this condition before. Was worried that had we given our savings that we would not get it back and once construction was complete no further funds would be released as the engineer would have nothing to sign off. I suppose a formal solicitors letter to the bank confirming they will return our funds would suffice!

DAT64

Pious14 wrote: »

Thanks for the replies. Our solicitor had encountered this and was worried how it looked as he had not seen this condition before. Was worried that had we given our savings that we would not get it back and once construction was complete no further funds would be released as the engineer would have nothing to sign off. I suppose a formal solicitors letter to the bank confirming they will return our funds would suffice!

I was thinking of getting solicitor/engineer to request extra funds during the stages & that would build our savings back up.
My understanding is that if we are approved for x amount we would get to no matter what just broken down in stages. I think they hold the last payment until engineer signs off on house & final valuation is complete.

Pious14

DAT64 wrote: »

I was thinking of getting solicitor/engineer to request extra funds during the stages & that would build our savings back up.
My understanding is that if we are approved for x amount we would get to no matter what just broken down in stages. I think they hold the last payment until engineer signs off on house & final valuation is complete.

Ah ok, so once your approved for the mortgage you get it regardless of the savings that have to be given up front? Excuse my stupidity on this

DAT64

Pious14 wrote: »

Ah ok, so once your approved for the mortgage you get it regardless of the savings that have to be given up front? Excuse my stupidity on this

Ya thats what I have been led to believe. As long as we fullfill all the conditions on our letter of offer & as long as our engineer & valuer play ball the approved figure is ours. The bank dont want us to run short, its in their interest to ensure we finish the house.
Do you mind me asking what bank you have gotten approval with? Ours is with Bank of Ireland. Are you going direct labour?

uberwolf

DAT64 wrote: »

I was thinking of getting solicitor/engineer to request extra funds during the stages & that would build our savings back up.

typically the engineer / qs would provide a breakdown of the sum needed and could not simply inflate the amount at your instruction. The agreement should all be documented in the formal loan offer.

Pious14

Yes to both questions. Sounds like its a standard condition they have so!

DAT64

Thanks Uberwolf, must suss out the breakdown.
Best of luck with the build Pious!

killers1

The reasons that the bank look for client to utilise their own funds first on a self build is because it is more riskier for them in so far as it is a lot harder to sell a site with partial works carried out in a case where the borrower defaults. Say for example you have €30k savings to put towards the project. They look for you to put your €30k in at the site purchase stage so in effect they are lending €30k to buy a site costing say €60k and are at an LTV of 50%. They are well protected here in so far as if you defaulted at this stage they have a good chance of selling a €60k site for more than €30k. It may be a lot harder if they had lent 92% of the site purchase i.e. €55,200 and had to try to achieve this figure to get their money back through selling the site.

Whatever loan to value and loan amount they have agreed to on the loan offer and based on the valuers report is what they will give you. If you have to pay more money out of your savings at the initial either site purchase stage (or first drawdown stage if site was gifted) you can get that back by having your engineer or architect factor it into the stage drawdowns or else wait till the final drawdown is received from the bank at which stage you will have a surplus left over which will be equal to the amount you put into the project over and above the 8% (if your ltv was 92%)