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Building Loan Process
Customers should take particular notice of all the conditions stipulated by the bank in
the Building Loan agreement, which will be signed at the attorneys before registration
of the bond. If you are unsure of any conditions, speak to one of our Building Loan
- Only once your Building Loan has been registered and transfer of ownership of the property has occurred, should the building construction process commence. Please note that no progress payments from the loan amount can be made prior to registration of the bond.
- Initially the bank will only allow disbursements to cover the purchase of the property/vacant erf or portion thereof, depending on the amount of loan granted.
- Thereafter funds will be released over a series of progress payments as the building process progresses based on a costto- complete basis. This is to ensure that sufficient funds remain in the loan to complete the project.
- A maximum of 6 progress payments will be allowed, unless the customer applies for additional progress payments, due to the extent of the tender amount or the difficulty/size of the dwelling to be constructed. Any payments processed in excessn of 6 progress payments will however attract an operational fee, which the bank will recover from the customer. Refer to our Annual Pricing Guide for associated fees.
- Remember that once funds are paid from your Building Loan, you are required to make regular monthly repayments based on the interim interest charged on these amounts for the period of the building process. Capital and interest repayments only become payable upon completion of the building or if the building term exceeds 12 months, capital and interest become n payable on the 12 month build period expiry (Unless the customer has obtained approval from the bank to extend the building period). If for any reason there is a delay in the completion of the building, it is your responsibility to contact the bank as soon as you are aware of this.
- The bank must also be notified of any deviation from the tender, plan, change in builder selected and specifications
submitted initially as this could affect the loan amount approved and ultimately the assessed market value of the property. The bank needs to, under such circumstances, pre-approve the deviations/changes once the loan has been fully re-assessed.
Building Loan Process
- Progress of the building process will be monitored by the bank and progress payments can be made at any stage in the construction progress, provided sufficient work has been completed to justify a progress payment.
- It will be a specific condition that prior to initial progress payments, the bank would require a copy of the Municipal approved building plan of the dwelling you are building. The final progress payment will only be made once the dwelling& improvements have been satisfactorily completed to a full habitable status as per original plans, tender and schedule of finishes submitted to the bank.
- Each progress payment request is to be made in writing and the applicable forms can be obtained from any Mortgage Zone branch, the Home Loans Contact Centre on +27 071 671 0665 or from the Home Loans page on Mortgage Zone’s website, www.mortgagezone.co.za.
- The forms can thereafter be submitted to Mortgage Zone Home Loans for processing. Our staff will gladly assist you should you have any difficulty completing the requisite forms.
- All progress payment requests must be properly signed and dated by you (the customer only or jointly if the account is held by joint parties) and the principle building contractor. Any special conditions by the bank must be met prior to final progress payment (i.e. engineer’s certificate).
- Payments will only be made directly to the builder’s account or the customer’s account, provided the correct account details are recorded on the progress payment request form. No payments will be allowed to any third parties. Avoid signing blank progress payment requests or post dated requests with the builder, as this could result in unauthorised amounts being applied for.
- The final progress payment request is only to be requested once all the building work has been completed and you are completely satisfied with the work completed and all connections of water, electricity and sewerage have been tested. Please note that this progress payment will only occur once the bank has received an occupation certificate issued by the Local Authority, an electrical compliance certificate and your letter of satisfaction simultaneously with your final payment request form.
- You also need to ensure that any other special conditions initially stipulated by the bank e.g. engineer’s certificates etc. are submitted together with the other forms or at the times specified by the bank in the Mortgage Loan Agreement.
Building Loan Policy
The project must be enrolled with the NHBRC (National Home Builders Registration
Council) which provides automatic cover over structural defects for a period of 5 years
after effective completion of building work.
- The contractor or subcontractor and his/her team must be NHBRC registered. Mortgage Zone Home Loans will NOT
- Unconventional construction methods will not be considered, unless prior approval is received from Mortgage Zone’s
Property Valuations Department.
- Building operations must commence within 3 months after registration of the loan and must be completed
within a further 9 months thereafter.
- The building contractor must carry Contractors All Risk Insurance and proof thereof must be submitted to
- A property valuer will inspect building progress at least 3 times, and possibly 6 times during the course of
the project and will report accordingly. The bank will however require a progress inspection with each progress
payment request received.
- Inform the builder and the bank of any problems, concerns or delays in the building process. The bank will not act as clerk of works on your behalf and in need, you may want to appoint a suitable qualified professional person to supervise or oversee the project. It is important to note that you have appointed the builder and all disputes are to be discussed directly with the builder and the NHBRC where deemed necessary.
- Ensure that the contract you sign with the builder does not comprise of conditions which will be prejudicial to you.
In need, consult with a legal advisor or a suitably qualified professional to assist you before signing the contract.
- Request progress payments only if you are satisfied with the progress and the amount requested by the builder.
- Service your interim interest by making regular monthly repayments for these amounts as this will avoid any shortfall that may occur.
- Ensure that you and your builder understand all the bank’s conditions of loan and that all the conditions are being complied with at the times required/stipulated by the bank.
- Ensure that on completion of the building that your Home Owners Comprehensive Insurance Cover is in place. The
Contractor’s All Risk Insurance Cover only provides cover from the date when construction commences until date of completion/occupation.
The requirements of the builder:
- The builder must be registered with the NHBRC.
- The builder must build according to the approved plans and specifications and conform to the requirements
of The National Building Regulations at all times.
- The builder must enroll the property being built with the NHBRC, prior to construction.
- The bank will require the Builder to sign a waiver of lien.
- The bank would require proof of a Contractor’s All Risk Insurance Cover for the duration of the building process
- The builder must comply with the bank’s conditions as and when required and ensure that the project is
completed within 12 months from date of registration.
How do progress payments work?
What is a progress payment?
As work on your building progresses, your builder will require progress payment/reimbursement for completed
construction work. The bank will make these payments based on the estimated cost of building work completed, the
estimated cost to complete the project and after receiving a duly completed and signed progress payment request form
from you. Payment will not be allowed for materials on site or upfront to purchase any materials.
Progress payments are calculated according to the applicable tender amounts by ensuring that sufficient funds are
always retained to complete the building. The bank’s appointed valuers will assess the value of the work completed. The
bank will calculate the amount of money that must be retained to complete the contract with each progress payment request.
Never pre-sign a blank progress payment form and hand it to the builder.
Bear in mind that the bank requires the signed and completed progress payment request form with all required
supporting documents, at least five working days prior to the date of expected progress payment.
What additional amounts am I liable for?
There are usually up to six progress payments permitted before your house is complete, therefore additional progress
payments will attract an inspection/operational fee. Refer to your Annual Pricing Guide for fees.
Is a Building loan shortfall likely?
If the tender amount by the builder reflects a realistic/market related construction cost to build your dwelling then
a shortfall will be highly unlikely, unless the loan amount approved or required is less than the tender amount. Any
difference between the loan amount and the tender will have to be paid by you from your own funds upfront towards
construction progress or the purchase of the land, before the bank will allow any advances from the loan amount.
Building Loans involve higher risks and demand far more attention on the administrative side than ordinary home loans
and an in-depth understanding of the process and application of the basic rules will allow the bank to strive to deliver
“the ultimate customer experience”.
The purchase of a new home is an emotional experience for every customer – an investment in an asset with a 10 year +
lifespan. However, when a customer decides to BUILD his own home there is uncertainty and excitement – anxiety as the
customer relies on the contractor to interpret and realise his vision of a dream home. At times misunderstandings will cause
distress, and the bank official should be knowledgeable and confident in providing assistance.
If the tender amount is totally insufficient in relation to a realistic market related cost to build the dwelling the bank will most
probably decline the application upfront or request that you supply the bank with another more realistic tender.
A shortfall may occur in the following instances:
- when the bank’s estimated cost of what it will take to complete the building is higher than the contract
price quoted by the builder
- when the loan applied for by the customer is less than the contract price due to a combination of the above
the bank will not pay for nor take cognisance of any materials on site.
What are the procedures for final progress payment?
On completion of the contract, when the builder requests final progress payment, inspect the house to ensure it has
been completed to your satisfaction as per the plans and specifications per your contract. You will be requested by the
bank to sign a letter of satisfaction, advising us that you are satisfied with the completed house.
In addition, a signed copy of the certificate of occupancy, which is obtainable from the Local Authority - and any other
documents requested in the Mortgage Loan Agreement - must be forwarded to us before a final progress payment can
be processed. You can fax your progress payment forms to +27 071 671 0665.
Documentation / Forms required
On Date of Application
- A written quotation / tender from the builder for the construction work to be undertaken.
- Proof of registration of the Builder with the NHBRC.
- A schedule of finishes specifying the materials and finishes which will be used in construction.
- A building plan of the buildings and improvements to be erected.
- NOTE : Local Authority Approved Plans are not a necessity at this stage.
Prior to Registration of the Bond
- Mortgage Zone Tender and Building Specifications- Minimum Requirements
- Mortgage Zone Waiver of Builders Lien.
- Proof of Contractor’s All Risk Insurance Cover.
- Prior to any Progress Payments from the Loan
- A copy of the Approved Local Authority building plan.
- NHBRC Unit Enrolment Certificate.
- Any other additional documents required by the valuer.
- Prior to Final Progress Payment
- An Occupancy Certificate from the Local Authority.
- An Electrical Wiring Compliance Certificate from the Builder.
- Any other condition as stipulated by the valuation department, i.e. engineers certificates etc.