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Frequently asked questions about country homes


 

Contract vs Finance Approval

We get it: all the paperwork and technicalities surrounding your home build can be a bit overwhelming.  Contracts, finance approval and permits… not to mention the 101 decisions you must make when planning the home itself!  However, we’d like to assure you that even though it’s an emotional and exciting journey, the team at Hensley Park are here to support you every step of the way.

Most customers require additional finance in the form of a bank loan to be able to complete their new home.  This is perhaps one of the most important steps in the initial building process, and one that can be rather daunting, especially if building is a new experience!  Over the years we’ve noticed that the concept of signing the home contract in conjunction with getting finance approval seems to cause confusion in the minds of some of our customers, so we’re taking the time to explain these two points here – we want to ensure that you understand and are comfortable with every stage of your new home build, from start to completion.

It’s important to understand that when a bank gives pre-approval for finance, this is only calculated on a set of basic criteria such as current earnings, potential equity position etc.  It doesn’t take into consideration a lot of the fine details such as accurate pricing, the building company, the method of the build and permits, all of which are necessary for the bank to process the loan application and progress it to a full finance approval.

Here’s how it works:

Your bank will require a signed contract to grant unconditional finance.  We understand that you may feel hesitant to enter into signing a contract without guaranteed funds, however it’s super important that you understand that Hensley Park’s home contracts are subject to finance approval: i.e. your home contract is not binding until you receive confirmation of your unconditional finance from your financial institution.

So, once everything is sorted (including plans, specifications and planning permit) and everyone is happy to take the next step, the contract is signed by both parties (Hensley Park and the customer) then it’s the customer’s job to go back to the bank with the newly signed contract and apply for unconditional finance to get the home build underway.  The bank processes the application and approves it, then the customer pays the 5% deposit and the contract is actioned: from here it’s all systems go!

To summarize, it’s critical to understand the two separate steps of signing and paying the deposit: signing the contract simply means that both parties agree to and lock in all the relevant details of the home (plans, specifications, pricing, terms & conditions etc.) whereas paying the deposit is the means by which the contract is ratified or activated.

Typically, banks take several weeks to process and approve finance.  Our contracts include a minimum 21-day clause for finance approval, however, if the wheels of progress are moving slowly, we can handle that too: the key is good communication between us and the customer, so we know where the approval is at.  If the approval process is really dragging out (e.g.: upward of 3-4 months) and the home price has increased slightly, it may become necessary to cancel the initial contract and re-sign a new one, however, this situation is rare.

Just another point to consider: sometimes customers require their bank to fund the initial 5% deposit, for which the bank will require a building permit.  However, as the builder, we can’t even apply for a building permit until the contract is ratified by the deposit. We understand that this situation is a bit of a ‘catch 22’ however, the key is to be aware of it and discuss it with your banker or finance broker early in the process.  Generally speaking, the situation can be worked through and a method of funding the deposit worked out between the customer and the bank.

As always, a clear understanding of each stage of the process and open communication between all relevant parties will ensure a smooth and enjoyable home building experience.  And the team at Hensley Park are here to help you create and enjoy a home that exceeds your expectations!