Construction Loan

[Jul Ng-Liew 0]

Hello all:

My first post. Been viewing this forum as a bystander for a while tho.

I can't seem to find information on taking a construction loan online and on Renotalk.

My plan is to do an A&A and the estimated cost could come up to $600k. Would appreciate if anyone can advise on the this-

What bank offers the most competitive rates?

Can I take a 30 yr contruction loan for this given that I am also taking a 30 yr housing loan?

Thanks in advance!

[Lauer 15]

Hello all:

My first post. Been viewing this forum as a bystander for a while tho.

I can't seem to find information on taking a construction loan online and on Renotalk.

My plan is to do an A&A and the estimated cost could come up to $600k. Would appreciate if anyone can advise on the this-

What bank offers the most competitive rates?

Can I take a 30 yr contruction loan for this given that I am also taking a 30 yr housing loan?

Thanks in advance!

Normally, once the A&A of the house is completed, you will want the house re-valued by the bank so that you are eligible to convert the outstanding construction loan amount to a second housing loan. Simply because the interest for housing loan is lower than the construction loan. Doing so also qualifies the second housing loan for CPF financing.

The banks have slightly different ways of calculating loan eligibility, so why not speak with the different banks directly to understand the rates? You will need their inputs anyway on a house before signing the OTP.

Cheers!

[jumbopanther 2]

Hello all:

My first post. Been viewing this forum as a bystander for a while tho.

I can't seem to find information on taking a construction loan online and on Renotalk.

My plan is to do an A&A and the estimated cost could come up to $600k. Would appreciate if anyone can advise on the this-

What bank offers the most competitive rates?

Can I take a 30 yr contruction loan for this given that I am also taking a 30 yr housing loan?

Thanks in advance!

Hi just curious, $600k for A&A, sounds extensive? $600k could probably qualify for re-construction.

[Jul Ng-Liew 0]

The bankers these days are very tardy in their reply. My Citi R/ship manager told me that a construction loan's i/r is abt 5% p.a. ; max 2 years. That sounded ridiculous. When I called HSBC and UOB a month back and spoke to operators, no one called me back.

I surmised that it was either that

1) the banks are too understaff

2) construction loan is not popular.

I haven't purchased the house yet but have zoomed down to a few terraces in original condition that would require major A&A ( estimated $150psf onward). $600k worht of work is what most agents and renovators quote.

Don't people take a form of loan to pay for the A & A or I am guessing that most pay off using hard cash?

Appreciate if I can get some advise soon.

[Lauer 15]

The bankers these days are very tardy in their reply. My Citi R/ship manager told me that a construction loan's i/r is abt 5% p.a. ; max 2 years. That sounded ridiculous. When I called HSBC and UOB a month back and spoke to operators, no one called me back.

I surmised that it was either that

1) the banks are too understaff

2) construction loan is not popular.

I haven't purchased the house yet but have zoomed down to a few terraces in original condition that would require major A&A ( estimated $150psf onward). $600k worht of work is what most agents and renovators quote.

Don't people take a form of loan to pay for the A & A or I am guessing that most pay off using hard cash?

Appreciate if I can get some advise soon.

It is Sunday but what the heck here it goes...

(Again, I don't say that I know everything related to this topic so other forumers please amend, add, and delete what I wrote as they see fit.)

The people who can get you in, to the right loan officers that are able to answer most of your questions in one sitting, are?

The property agents marketing the houses that you are surveying to buy. They have, or should have, the guanzi to the bankers.

In order to earn the commission, they have to close the sale. And this includes helping the buyers getting financing, whether for a short term bridge or a longer term housing loan.

I don't know about foreign banks (Citi, Maybank etc), but it should be good enough just talking to DBS, UOB first, and then add Citi later, example, to see what it has to offer.

A construction loan will have a clause that states the expected tenure of the proposed A&A or rebuilding. More accurately, it states the time limitation to completely utilize the construction loan amount, which is usually 16 months? Remember that, while the old house is being torn down and the rebuilding (or A&A) is taking place, the bank is taking a risk because there is no longer a good collateral for the loan. The bank will want a fair compensation for carrying this risk and I thought that It should be reasonable for the rate to be 1.5 or 2% above the housing loan rate.

Now, how the banks evaluate a loan prospect, there are quite a few areas. Other than the usual borrower eligibility stuff, for landed housing the most important is the land's tenure. That is, whether the house is sitting on a leasehold or freehold, and if leasehold what is the remaining lease.

So, for the housing loan part, there are the bank valuation of the land and the existing house. Let's call this Housing Loan I.

For the construction loan part, as I explained previously, after the building completion, it is expected to be converted to a second housing loan. Let's call this Housing Loan II.

When evaluating the loan prospect, the bank will also arrive at an indicative future of the new house. In other words, the sum of Housing Loan I & II must be lower that this indicative future value.

What does this mean? If you are doing an A&A that basically beautify the existing house (for example, changing the staircase) without a substantial increase in GFA, then the equation will fail. Then in all likelihood the bank will not support the construction loan for A&A.

There you go.

Cheers!

Edited September 16, 2012 by Lauer