Construction Loans
 "Construction Loan Underwriting Standards")
Construction Loan Underwriting Standards
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Types of Construction Loans
− Turnkey Contract− Build Only Contract− Partial Contract
Insurance
During the period of construction, a Builders Risk insurance policy with the Bank’s interest noted is always required.
Repayments
Throughout the construction period, the loan is to be on an interest-only basis (unless customer opts to fix a partially drawn construction loan
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Progress Payments
Turnkey Contract
A single fixed price contract with the builder that specifies a completed property or renovation. These are often House and Land packages with staged progress payments throughout the build.
Build Only Contract
A single fixed price contract with a builder that specifies a completed property or renovation to a completely liveable and compliant condition but not to the same standard as turnkey. The owner is responsible for completing some finishing work themselves or may have other contracts in place. This may also include turnkey contract transactions that do not meet all of those requirements, e.g. lack of guarantees or excessive PC Sums.
Partial Contract
There are many variations, but usually a range of sub-contracts managed by the customer or a project manager, and/ or a labour only arrangement with the contractor(s). This type typically includes relocated and kitset homes. In the case of kitset and relocated homes, the valuation can generally only take into account buildings and improvements that are permanently fixed to the land. This generally limits the lending on these transactions to the land value only until the buildings are permanently attached.