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Bond Approval Process When Buying Off-Plan

Should you require a home loan to finance your off-plan purchase within a development, the process will be followed as per any normal property purchase, with a few minor differences:

Before the development goes to market, Phoenix Bonds will seek pre-approval from all the major banks prior to the development going to market. The pre-approval process protects both the bank and the end-user to ensure that:

  • the builder meets NHBRC standards in terms of competence and experience;
  • the purchase price of each unit meets market value in terms of the land price, build cost and finishes; and
  • each bank’s exposure within the development is capped to align with their risk profile for that area.

Purchasers can then apply for a home loan on individual units within the development through Phoenix Bonds to all the banks simultaneously. The home loan will typically cover the cost of the land and building contract, less any mandatory deposit required by the developer. Purchasers can also choose to put an additional deposit down to reduce the loan amount and subsequent interest paid on that loan.

The banks will compete with each other to offer you the best possible interest rate for the required loan amount and term, provided that they have not yet met their exposure (maximum number of bonded properties) within the development. Once Phoenix Bonds have provided you with multiple competing offers and negotiated on your behalf to reduce the interest rate, you can select a bank/offer to proceed with. The home loan is then approved and instructed to the bank’s panel attorney – and lies in wait for transfer and registration.

Up to this point, there are no additional costs involved, aside from the deposit payment (if any). The home loan offer can remain on an APPROVED status for up to 12 months while the remaining units within the development are sold. Once the minimum number of units required for the development to proceed have been sold, transfer of the land is initiated by the transfer attorney. During the transfer process, the land portion will be transferred from the developer’s company into your name, and the bond for the land portion + building cost will be simultaneously registered over the land.

Once the land is transferred and the new bond is registered, the developer will start to “draw funds” from the bond – this is typically between 3 and 8 drawings over 6 to 9 months as the build progresses. You will start to make monthly bond repayments in the first month after transfer, only on the land portion to start, and then increasing amounts as the drawings reach closer to the full loan amount. Only once the property is fully completed, will you be paying the full monthly repayment on the home loan.

At this point, you will also be moving into your untouched, super clean and newly built dream home!

For assistance with the pre-approval of your development, or home loan application, contact Phoenix Bonds for expert advice and personalised service.

Note* that the above applies to plot and plan developments. A sectional title “turnkey” solution would be a little different, in that the entire unit/property is transferred in one go, once the build is complete.

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