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It is your decision to become a Landlord

Finding the money to build a new home differs from taking out a traditional or conventional property loan for an existing house or property, because to build a house, you essentially need two loans;
one for the land and one for the construction phase. But the process is not nearly as difficult to navigate as it may be seen, as many lenders often combine these two loans into one loan. Here are some basics information about the process to get you starts:

Most banks or lenders are cautious about lending money on raw land because it can often be difficult to resell in case of default. Those that will lend may want a large down payment of 50% or more with a high interest rate. It might be best to pay cash, if you can.

In order to build, you will need to have sufficient savings to cover the cost or a construction loan, which isn’t available through all lenders. Those that do will require approved plans and specifications, estimated cost or bill of quantities, appropriate permits, and qualified bonded contractor/builder before they will consider lending for construction. This type of loan allows the builder to make draws on the total amount of money as each phase of construction is completed. The lender may want to inspect the property to ensure that the work has been done.

Another approach to building is a package loan, which allows money for the purchase of land and construction of the house all in one package. This unique approach is a package deal, which merges everything together from land, designing, to complete construction oftentimes refers to turnkey or [design and build] – in our instance it is FINANCED DRIVEN APPROACH and you only need to qualify only once and pay only one set of closing costs and single point responsibility for the complete project.

Though the current economic climate presents some challenges in building a new house with fewer lenders and fewer Naira available, more stringent lending practices applies, securing financing for building a new house can be tough – but it’s not impossible. We will walk you through the basics to help you navigate the process as the time to build is NOW. – The earlier, the better, not when you are old and the children have moved their separate ways.

To understand how to qualify for a building construction loan in today’s market, you should understand that building loans are very different from typical traditional property loans. With a traditional property or house loan, you make a down payment, take possession of the house, and then make a payment to the lender each month. But with a building construction loan, you are asking the bank or lender to estimate the value of something that does not yet exist – and then lend you money for it. A lot can happen during the typical construction process – from the expected construction delays and cost overruns to the unexpected – like a change in your employment situation or your builder going out of business. The risk to the bank is much greater, so it exercises greater caution in building construction loan decisions.

A building construction loan is really a reimbursement process. The bank does not advance building funds; it will only pay for construction items that are complete. Each month you must submit a draw request along with supporting documentation to prove that building is progressing. The bank reviews the documentation, a third—party inspector may be involved to visits the building site, and only then will the bank issue a reimbursement payment for the construction phases that are complete.

There are three major elements to qualify for a building construction loan. Think of these three elements as the sides of a triangle. All three sides must connect for a building construction loan approval. One side is the total cost to complete the building, including all the costs associated with building a new house. Side two is the appraisal value, or the estimated value of the new house when completed. The third side is the foundation of the triangle, representing the building construction loan amount, including land equity and your down payment. Your personal financial qualification and circumstances determines this amount.

The Cost to Complete is your building/construction budget, and comprises the following elements;

I. Land – if you are buying land or if you own a building plot, you need to consider the purchase price or land payoff costs in your new building/construction budget. Understand that current values may be higher than in prior years and be conservative in your market valuation, as the bank will be conservative too. Be aware that land improvements like water, landscaping, fencing, street grading [if necessary], and utilities should be included in your construction budget. Land development costs can easily be overlooked and underestimated.

II. Soft Costs – You will need house plans, site plans, permits, structural plans, bill of quantities preparation and other soft cost items. These expenses are often overlooked as part of the construction budget, as you will probably have to pay for them prior to closing on your building construction loan. Banks or lenders in today’s market will want to verify that your house plans are complete, estimated value is known and have been approved by your local building or planning department.

III. Hard Costs – These are the typical costs used in per square meter cost breakdowns, and they include site work, excavation, building materials, labour, and general builder’s fees. Your builder may give you a fixed price contract for these items. Homeowners and builders tend to focus only on these costs when they are developing their budgets, mistakenly overlooking the soft costs and land development expenses.

IV. Reserves – Most lending institutions procedure requires you to have a reserve fund. Your contingency fund should be 5 – 10% of your total hard and soft costs. This amount should be added to your final building/construction budget, to be used for unplanned cost overruns. The contingency fund gives both you and the lender some security for unforeseen expenses.

V. Loan Closing Costs – Every loan will have fees that will be charged to the borrowers; appraisal fees, title search fees, underwriting fees, administration fees, to name a few. The lender will normally produce a Good Faith Estimate [GFF] to disclose all the fees and costs to you.
The budget is closely link to loan amount and can be established through any of the followings:
> Assessment of projected income and expenses through the life of the project.
> Comparison with similar projects
> Assessment of the funds available
> Pre design analysis of requirements
> Analysis of preliminary design options
Therefore, for a finance driven project, a combinations of the above can be used for client requirements and capacity which is distinct from a straight jacket cost plan prepared by a cost consultant which are likely to focus on the construction cost only.
The client`s total project budget may include all or some of the followings;
~ Land Acquisition Cost
~ The Construction Cost
~ Site investigation and Environment Impact Assessment
~ Approval and Planning Fees
~ Fixtures, Fittings and Equipment
~ Consultant or Professional Fees
~ Financing Costs
~ Insurance
~ Inflation
~ Contingency
It is important that in our own case, budget will be established, discussed and agreed with the clients on the parameters used and items included from the above or other under considerations.


The preparation and pricing of Bill of Quantities is usually enough to achieve the above value. But some lenders may insist that plans and specification will need to be reviewed by an independent appraiser. They will calculate the value of your building
plot and bill of quantities and compare it to recently sold and comparable houses in the area. The lender wants to verify that the completed house value will conform to the local market and they may hedge down the appraisal value.

This is the total amount of money needed for your building project which will be subject to your requirements. Banks and lenders want you to have more equity in the new house project, greater down payments, or/and land equity. They also want to see full documentations and asset-based qualifications. Your employment, credit standing, debt-to-income ratio, and other qualifications and circumstances will be reviewed to determine the loan amount.

The project starts with the definition of its objectives and with the moment where the client meets the professionals or project team and exposes the goals for the project. During this initial phase, clients and design or project team share information seeking to develop the project concept. The quality of information available and shared among the stakeholders invariably increase performances and reduced cost at the early stage of the project.

Construction starts with planning, design, financing and execution, and continues until the project is built and ready for use. Scheduling is the process of thinking about and organising the activities required to achieve a desired goal. Therefore, a project schedule is a valuable project control tool that is used to manage construction projects. The schedule defines specific time periods for each activity in the schedule. The sequencing and summation of the individual time elements of works will define the overall project duration.

Cost Control:
Cost Control is any management tool puts in place to prevent project cost overruns and scheduling lapses by ensuring progress through harmonisation of activities with time estimates and logistics of materials, labour, equipment and overhead expenditures. The time at which major cost savings can be achieved is during planning and design stage of any project, therefore, the objectives of cost control is to manage the delivery of the project within the approved budget. As a result, architects and engineers are not trained to do this job effectively, professionally, only quantity surveyors can apply expertise to relate the work and materials involved to a proper valuation to avoid cost overruns and delays.

Construction is a feat of human multitasking, involving architects, engineers, quantity surveyors, builders and contractors etc. for the successful execution of a building project.
Those involved with the design and execution of your project must consider range of requirements such as quality information, cost and schedule as the main indicators of performance. These indicators are highly interrelated and requires some balances and trade off among them to achieve efficient overall control over project performance.
It had been found that traditional method of construction through different professionals, may differed in terms of their objectives and approach to a particular project, hence deterioration of the relationship between project parties may increase the likelihood of poor performance with reference to time delays, cost overruns and quality defects.
Therefore, the adoption of single point responsibility through multi disciplinary firm such as Project Panacea Ltd. helps to solve the performance problems.

Your dream of building a new house is not out of reach, but in today’s market you must plan, prepare, and make a strong presentation to your bank or lender. The market values construction cost details that you present to the lender will have to meet underwriting guidelines. Be sure they are accurate, and verify all of your qualifications in advance and make good use of the resources available.


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