First Draw Down on Self Build Mortgage

Duffers11

Hi, hoping some1 can point me in the right direction. Finally been approved for a self build mortgage with UB, they advised that it is 100% of the construction costs as the site was gifted. Im just wondering as to how the first payment is drawn down? If it's 100% of construction costs, there's nothing to put on a stage payment certificate so just wondering how this is done?

EngTech

Your first drawdown won't be made until you have some work done on site, i.e. foundations/deadwork. Your supervising architect/engineer then certifies the value of work that has been done and you draw it down and pay the builder.

Have you agreed a schedule of payments/drawdowns with UB yet?

Duffers11

No haven't gone through anything yet, But it was never mentioned that I would have to put my funds in to it first as my savings were allocated for 'over runs' meaning that I would have no other funding other than mortgage! Just a little confused as to how the whole process goes.

EngTech

Some banks are forcing self builders to use their own funds first before drawing down as it restricts their exposure should things go wrong. I'm not sure what UBs policy is at the moment.

Regardless, your builder mightn't require first payment until you make your first drawdown, so it may not affect you.

fm

EngTech wrote: »

Some banks are forcing self builders to use their own funds first before drawing down as it restricts their exposure should things go wrong. I'm not sure what UBs policy is at the moment.
.

yes we had to front 20% first

muffler

Most banks are flexible regarding the stage payments insofar as they will pay out on the presentation of each stage payment by the supervising architect/engineer/technician.

The way it works and the way you need it to work for you is to agree an overall price with your builder and then break it down into individual payments at various stages which is normally 4 or 5 payments. You need a written contract to cover all this so talk to your architect and/or solicitor.

For example you agree to pay the builder €30,000 when he is at sub floor level. He will need to carry out site works incorporating access road, water connection (connection fees will be your responsibility), clearing the site, digging out and pouring foundations, build up footings, provide hardcore filling, radon sump and membrane, waste outlet pipes, pour sub floors.

The builder/contractor will have to carry out all of the above works at his own expense and when he has reached the sub floor stage your "supervisor" will issue a cert to confirm that the value of the works comes to €30,000. This cert goes to your solicitor and they in turn request the payment from the bank. The bank will release the cheque to your solicitor who in turn make the payment to you* and in turn you pay the builder his money.

*Just to note that if you have not already paid the solicitor his/her fees for dealing with the mortgage then he/she will deduct their fees from your first payment and give the balance.

Another thing to watch out for is the final payment. You will need to check the terms of the mortgage but the bank will normally hold 20 - 30 thousand as the final payment. They wont release this until the house has been fully completed and the site (driveway, gates etc) is also finished.

sas

muffler wrote: »

Another thing to watch out for is the final payment. You will need to check the terms of the mortgage but the bank will normally hold 20 - 30 thousand as the final payment. They wont release this until the house has been fully completed and the site (driveway, gates etc) is also finished.

I've not heard of final payments anywhere near that size but I'm not in a position to dispute it. Our final payment is 5k, we drew down the last stage at the start of Feb. Our contract has been in place for along time though so that could explain it.

Another point to note is that a final valuation is done before the final amount is released. With property values dropping you could find yourself in a position where the property isn't worth the amount of the mortgage and you'll find the lender trying all sorts of approachs to not give the final stage.

We are working on the assumption that we won't see our final 5k.

killers1

sas wrote: »

I've not heard of final payments anywhere near that size but I'm not in a position to dispute it. Our final payment is 5k, we drew down the last stage at the start of Feb. Our contract has been in place for along time though so that could explain it.

Another point to note is that a final valuation is done before the final amount is released. With property values dropping you could find yourself in a position where the property isn't worth the amount of the mortgage and you'll find the lender trying all sorts of approachs to not give the final stage.

We are working on the assumption that we won't see our final 5k.

The banks generally withold a percentage (circa 10%) of the loan until completion so could be €20-€30k depending on the size of the initial loan. The final stage drawdown is not a case of the banks trying to get out of releasing these funds. It's simply just a matter of the original valuer being happy to sign off to say that the expected value on completion when the initial valuation report was done has not decreased and the overall loan to value is still within the banks loan to value policy.

killers1

Duffers11 wrote: »

No haven't gone through anything yet, But it was never mentioned that I would have to put my funds in to it first as my savings were allocated for 'over runs' meaning that I would have no other funding other than mortgage! Just a little confused as to how the whole process goes.

Has your loan offer issued yet?

sas

killers1 wrote: »

The banks generally withold a percentage (circa 10%) of the loan until completion so could be €20-€30k depending on the size of the initial loan. The final stage drawdown is not a case of the banks trying to get out of releasing these funds. It's simply just a matter of the original valuer being happy to sign off to say that the expected value on completion when the initial valuation report was done has not decreased and the overall loan to value is still within the banks loan to value policy.

As I said previously, I was only speaking for my own situation. The retention is 5k in my case.

As regards the banks position I think it really comes down to how you view it.

Person A takes out a mortgage on the basis that they will be given that mortgage. If there is a 10% hold back and the property has dropped in value between initial and final valuation, the vast majority of us could be entirely screwed. I am of the opinion that once you have the ability to service a loan, the banks should release all the funds per the agreed payment schedule. This assumes that a stage payment certificate has been issued and that the build hasn't taken an unreasonable amount of time.

killers1

sas wrote: »

As I said previously, I was only speaking for my own situation. The retention is 5k in my case.

As regards the banks position I think it really comes down to how you view it.

Person A takes out a mortgage on the basis that they will be given that mortgage. If there is a 10% hold back and the property has dropped in value between initial and final valuation, the vast majority of us could be entirely screwed. I am of the opinion that once you have the ability to service a loan, the banks should release all the funds as agreed on Day 1. This assumes that a stage payment certificate has been issued.

I've no doubt your retention is only €5k and that wouldn't be an unusual amount. The vast majority wouldn't be screwed as generally a site with a completed property on it is worth more than a site with the plans for that house... The banks will ALWAYS allow the final stage to be issued once the final valuation indicates a value within their loan to value policy & a cert of compliance has been issued by the Architect. I have never had a case where a bank has refused to issue the final stage when these 2 conditions have been met.

sas

killers1 wrote: »

I've no doubt your retention is only €5k and that wouldn't be an unusual amount. The vast majority wouldn't be screwed as generally a site with a completed property on it is worth more than a site with the plans for that house... The banks will ALWAYS allow the final stage to be issued once the final valuation indicates a value within their loan to value policy & a cert of compliance has been issued by the Architect. I have never had a case where a bank has refused to issue the final stage when these 2 conditions have been met.

I didn't say they wouldn't release the money if the criteria is met.

However, the market took a big tumble in the first quarter of this year. It is reasonable that a property that started in Nov. could fall outside criteria now. The owers have spent the money because the stages are paid in arrears and hence the situation could get very difficult.

killers1

sas wrote: »

We are working on the assumption that we won't see our final 5k.

Why? Ultimately it boils down to the valuer. If they valued the plans 6 months ago and gave a value on completion based on a projected completion date 6 months down the road taking into account market factors I'd be surprised if they don't stand over their initial valuation...

sas

killers1 wrote: »

Why? Ultimately it boils down to the valuer. If they valued the plans 6 months ago and gave a value on completion based on a projected completion date 6 months down the road taking into account market factors I'd be surprised if they don't stand over their initial valuation...

Our house has been in construction for quite a while so I'm confident (sadly) that we are underwater. I also don't want to even try drawing it to be honest i.e. mortgage is big enough

Clearly I didn't make my original point very well.

In my experience, people typically assume that once you've a loan offer, that the full amount will be released over the build. You've underlined that the final payment will be dependent on the final valuation and the amount could be up to 10%. It is not a fact that final valuation will be better\the same as the initial valuation, now more so than ever.

As long as people are clear on this then they can spend accordingly.

killers1

sas wrote: »

Our house has been in construction for quite a while so I'm confident (sadly) that we are underwater. I also don't want to even try drawing it to be honest i.e. mortgage is big enough

Clearly I didn't make my original point very well.

In my experience, people typically assume that once you've a loan offer, that the full amount will be released over the build. You've underlined that the final payment will be dependent on the final valuation and the amount could be up to 10%. It is not a fact that final valuation will be better\the same as the initial valuation, now more so than ever.

As long as people are clear on this then they can spend accordingly.

Yes, I agree with you completely on this. More likely it may happen on a direct labour self build as opposed to a fixed price contract as they tend to take longer to complete. Anyone who is close to their lenders max loan to value based on the valuation on the site & plans would be more at risk...If you're borrowing €200k and the initial value on completion (based on the valuation report used for offer) was €300k it wouldn't effect the loan if the value on completion only came in at €250k... It was where you said 'you'll find the lender trying all sorts of approaches to not give the final stage' that I found misleading..

Duffers11

Yeah got the loan offer letter today, my god what am I getting myself in for!!! We got a value upon completion of €360k, the loan is €155k, it states that the LTV is <75%. It states that the drawdowns are subject to six stages which includes a final retention amount of €15k pending a satisfactory valuation. Another thing I'm quite worried about, it says that my first payment will be made at the end of this month, haven't agreed to anything yet or signed anything etc and that the payment will be for the full monthly amount, although in another paragraph it says 'following release of each stage payment, the monthly payment will increase. Just concerned as I taught you pay on what you draw down??

killers1

Duffers11 wrote: »

Yeah got the loan offer letter today, my god what am I getting myself in for!!! We got a value upon completion of €360k, the loan is €155k, it states that the LTV is <75%. It states that the drawdowns are subject to six stages which includes a final retention amount of €15k pending a satisfactory valuation. Another thing I'm quite worried about, it says that my first payment will be made at the end of this month, haven't agreed to anything yet or signed anything etc and that the payment will be for the full monthly amount, although in another paragraph it says 'following release of each stage payment, the monthly payment will increase. Just concerned as I taught you pay on what you draw down??

Your case is straightforward in so far as you are well protected from a loan to value point of view. Your loan to value @ €155k/€360 is only 43% so the property value on completion won't be an issue and you'll have no problem drawing the full amount from the Bank. In relation to them taking a full repayment at the end of this month this isn't possible as you haven't even draw down the loan yet!! Don't worry about that part, it's probably just wording on a standard condition. The repayments are made based on when you draw down the funds and will increase as you draw down subsequent stage payments. If the bank didn't insist on a schedule of payments up front then you are free to drawdown the loan in stages that you decide upon after consultation with your supervising Architect/Engineer so it is very flexible. Hope this clarifies!

df299

Hi, I have a similar query on draw down mortgages.

I am hoping to employ a builder to get up the superstructure and get the building water tight. I then hope to carry out the remaining works with a combination of direct labour and work by myself/family, over a longer period of time.

I understand the stage payment for the builders element of the work. However when it comes to direct labour or carrying out the works myself, can I draw down payment for materials and labour etc prior to carrying out the works, as this part of the project would be over a months possibly a couple of years?

muffler

df299 wrote: »

However when it comes to direct labour or carrying out the works myself, can I draw down payment for materials and labour etc prior to carrying out the works

No, you are expected to pay for the costs of the various stages yourself (or get material and/or labour on credit) and then look for your stage payment.

jakko86

If you get approved for a mortgage based on a quote from a builder, can you then change your mind and go direct labour once the mortgage is approved?

muffler

jakko86 wrote: »

If you get approved for a mortgage based on a quote from a builder, can you then change your mind and go direct labour once the mortgage is approved?

I would imagine its possible but you would need to talk to your lender about it.

Im no expert on that end of things but I do get forms and certs etc to complete for various stage payments etc from different banks and building societies. For example BOI has a form to be completed when applying for a mortgage and it entails giving an estimate of the costs of the various stages and components and there is a section that needs completing where it requires details of the way the house will be built i.e. full contract, direct labour etc.

So if the mortgage has been approved based on information and details supplied on part of that is going to change then I would talk to them again.

jakko86

Thanks muffler one more thing, is the only difference between goin direct labour and getting a contractor for a mortgage the bigger deposit needed by the lender. I think boi want an extra 10% contingency for self builds, A bank cant force people to get a contractor can they if they want to go direct labour once they have all their costings done to a T for the bank?

muffler

jakko86 wrote: »

Thanks muffler one more thing, is the only difference between goin direct labour and getting a contractor for a mortgage the bigger deposit needed by the lender. I think boi want an extra 10% contingency for self builds, A bank cant force people to get a contractor can they if they want to go direct labour once they have all their costings done to a T for the bank?

I cant speak for the lenders other than to say that they do have a preference for fixed contract builds but again I have been involved in quite a few jobs that were done by direct labour

JJudy

If the first draw down (and deposit) was to pay for the site, would you still need to use your own money to do the foundations etc .
Would the bank be willing to give money to get the build started?