Doing Without Home Construction Loan

[druid 0]

Hi, firstly I would like to thank all the contributors of this forum. The knowledge I gained from reading the posts has been invaluable. I am a newbie and this is my first post.

1. I am considering of buying an old inter-terrace ($1mil) and do a rebuild ($300k).

2. I plan to sell my HDB flat. I should be able to get $500k (cpf + cash) for it.

3. Hence, I will have cash for the 20% house downpayment; and for rebuild cost.

4. So I just need a $800k loan for the bank.

5. But the problem is the bank told me that I cannot tear-down a house to rebuild. This is because the house will have no collateral value when demolished (for rebuild). So in order to proceed with the plan, I will have to take on mortgage and construction loan (which, from what I understand, can be tedious and constraining).

6. I hope somebody can advise me how one can take a home loan and do a rebuild. Thanks.

[leechaorui 2]

I hope somebody can advise me how one can take a home loan and do a rebuild. Thanks.

Are you sure you can still find old inter-terrace at $1 million. Even if you are able to find one at this price, I doubt that $300K is enough budget for rebuilding a house.

You can take both housing and construction loan. Some banks are more conservative and others can be more liberal. If you need help, let me introduce you to a contact of mine who may be able to assist you. PM me if you need help.

[dreamhouse 0]

i didn't know that bank would restrict you from rebuilding after you secured the loan - can you not tell them that you are rebuilding?

however, i think there are 2 other important points to consider:

1) whether 300k is sufficient for rebuilding

2) some old terrace houses are not compliant with current BCA requirement (front setback, rear setback) - if you rebuild, you will have to comply - and you may end up with a smaller build-in area. you can look around the vicinity and see if there are other houses that did rebuild/A&A - if all houses are in original condition, then you will have to be more weary before buying the house

[pantieileen 2]

I hope somebody can advise me how one can take a home loan and do a rebuild. Thanks.

Are you sure you can still find old inter-terrace at $1 million. Even if you are able to find one at this price, I doubt that $300K is enough budget for rebuilding a house.

maybe it's 99yr? like those in upp changi road? <1M 99yr SD also have

[eiffel76 1]

hmm give u a gauge on A&A cost...its about 220 - 250 psf...so 300k covers roughly 1300sf....is that the size of your terrace?

[kardtoon 0]

hmm give u a gauge on A&A cost...its about 220 - 250 psf...so 300k covers roughly 1300sf....is that the size of your terrace?

250 psf cost is a good estimate. I think $300k is really tight and might not be doable. A rough estimation of construction cost will be...

1) $250 psf x the sq footage you want to build

2) Add 11% of (1) for fees (architect, submissions, etc etc)

3) Add $50 to 80k for provisional items (lights, curtains, toiletries, etc)

For initial planning it's better to be more conservative rather than plan it too tight because once you start work, the house will be torn down and you have to fund it through to the end. So important that you get enough cash flow.

As for construction loan, check around with different banks. Some are tighter than others. I did notice something consistent across a few banks. Once they know that you plan to reconstruct, your mortgage will only be supported at <80% (typically 60 to 70%), the banks explained that this is because if you build halfway and run out of funds, it's difficult for the bank to repo the house and resell as it may be only a piece of bare land by then. One of the bank that I called (3 letters starts with D :-) ) expects you to provide progress reports and quarterly valuation as you reconstruct . Some are more relaxed.

[kardtoon 0]

As for your original question. Here's how I would do it assuming that I can find a $1M landed and rebuild for $300k.

1) Use your CPF/Cash to pay the initial 20% of the $1M house. Loan 800k from bank.

2) Use your remaining $300k for rebuild cost. Hopefully most of the $300k remaining is in cash because builders don't take CPF for payment

That way you avoid taking out a construction loan.

[wuga98 0]

just go and do what the bank is telling you as they are also looking after their interest as your original house and land is the collatoral. The construction loan will not harm you, just watch these 2 things;

1. Penalty if you do not draw down the total construction loan, see if you can get away from it.

2. When your builder quotes you, you can always tell the bank that you are only looking for 10% or something that is smaller as the construction loan and the balance you will pay out of your pocket and this is totally acceptable.

As construction loan is like a credit line, it will invite high interest, thus back to my pt #1, if you do not have penalty, you do not need to draw down if possible and all payment can be between builder/contractor and you.

In fact, when i did my rebuild, i manage the funds as such but i was not successful in getting rid of the penalty which i think you can manage if your loan amt for construction is not high. One thing, i miss to pay attention to is when to convert the construction loan to term loan, some banks uses TOP and some uses CSC. You shd shoot for using TOP for conversion. Thru the years, i have also pick-up a few nuggets, to get TOP, you need not have a completed house, you just need to satisfy a few of the requirements of the BCA and authority. If TOP is where you can convert, you can also save some interest, just need to be a little smarter here.

Another thing you need to bear in mind, some contractor i met would prefer you to get a loan for the construction as they felt, the payment is guaranteed, they have also whine about non-payment from house owners for completed work.

My advise is that there is no such things as handsoff or minimal supervision for any rebuild; you just need to be aware of what is available and set some direction for them to follow and that will help you along the way. Hope this helps

[druid 0]

I was away on holiday, and I totally did not expect this fast response from everyone. Thank you very much for all the thoughtful and informative replies.

I am just weighing my options; hence I have not clearly identified the house. But based on my search at PropertyGuru, and the likes, there are inter-terrace (FH/999) around $1mil. So I was basing my calculations on that low figure.

I was thinking of building a two-storey house with about 2000 sqft built-up area. That will be twice the size of my current HDB house. (So I think it should be comfortable). So based on kardtoon’s cost estimation guide, it will be $500k + $55k + $65k = $620. Wow! I think I need to save more before proceeding

Thanks for all your inputs!

PS: Does an open air roof garden counts as a built-up too (as compared to a normal roof).

[kardtoon 0]

I was away on holiday, and I totally did not expect this fast response from everyone. Thank you very much for all the thoughtful and informative replies.

I am just weighing my options; hence I have not clearly identified the house. But based on my search at PropertyGuru, and the likes, there are inter-terrace (FH/999) around $1mil. So I was basing my calculations on that low figure.

I was thinking of building a two-storey house with about 2000 sqft built-up area. That will be twice the size of my current HDB house. (So I think it should be comfortable). So based on kardtoon’s cost estimation guide, it will be $500k + $55k + $65k = $620. Wow! I think I need to save more before proceeding

Thanks for all your inputs!

PS: Does an open air roof garden counts as a built-up too (as compared to a normal roof).

Open roof garden does not count as gfa.

[leechaorui 2]

Open roof garden does not count as gfa.

Kardtoon is right. For more information on what counts in Gross Floor Area and what doesn't, you can refer to URA. Circular No : URA/PB/97/12-DCD

Cheers!

[waileong 0]

$250 psf is steep. Just to reconstruct a 2000 sf house is $500K-- are you sure? At that price how to rebuild? 2000 sf not very big for a landed, you know.

[leechaorui 2]

$250 psf is steep. Just to reconstruct a 2000 sf house is $500K-- are you sure? At that price how to rebuild? 2000 sf not very big for a landed, you know.

Agree with you that 2000 sq ft for a landed house is not very big. The reality is that prices of raw materials have risen eg. recent increase in the price of rebar by 30%, govt announcement of higher levies for workers, rental cost increase, proposed CPF rise etc... All this adds up to contractors' and architect's overheads and cost. I don't think $250 psf is unreasonable in today's market. One of my friend spend about $350 psf for construction. Another friend who spend lesser psf actually has not adequately provided for the construction cost of which he only found out later that he needs to pay for this, top up to get that, etc... In the end, after much effort, he also spend about $260 psf.

I suspect that cost of construction will escalate further with other countries such as China and India, competing for raw materials from us. If one has the means, it is better to construct now than to wait it out.

[pantieileen 2]

Agree with you that 2000 sq ft for a landed house is not very big. The reality is that prices of raw materials have risen eg. recent increase in the price of rebar by 30%, govt announcement of higher levies for workers, rental cost increase, proposed CPF rise etc... All this adds up to contractors' and architect's overheads and cost. I don't think $250 psf is unreasonable in today's market. One of my friend spend about $350 psf for construction. Another friend who spend lesser psf actually has not adequately provided for the construction cost of which he only found out later that he needs to pay for this, top up to get that, etc... In the end, after much effort, he also spend about $260 psf.

I suspect that cost of construction will escalate further with other countries such as China and India, competing for raw materials from us. If one has the means, it is better to construct now than to wait it out.

think the topic started needs to find a place 1M first....think i found 1 for him liao $639psf...fulfill all his specs, freehold, land >2700sqft, landed, minor reno, D15, high enbloc potential!

http://www.propertyguru.com.sg/listing/111...sandy-lane-uppe

Edited April 28, 2010 by pantieileen

[yoongf 11]

That Sandy Lane property is a upper floor duplex unit. Similar to the upstairs unit of a walk up shophouse.