Construction Loans in Papamoa: A Step-by-Step Guide
Papamoa is booming. From the established streets of Palm Springs to the rapid expansion in The Sands and Golden Sands, more Kiwis are choosing to build their dream home here than almost anywhere else in the Bay.
But financing a build is very different from buying an existing house. If you walk into a show home and sign a contract without understanding how the bank views it, you could be in for a nasty surprise.
As your local Mortgage Broker in Tauranga, we have helped dozens of families navigate the Papamoa construction maze. Here is everything you need to know about getting the money to build.
The Two Types of Build Contracts (Know the Difference!)
Before you fall in love with a plan, you need to know which of the two contract types you are signing. This determines how much deposit you need.
1. Turn-Key Contracts (The “Easy” Option)
A Turn-Key contract is exactly what it sounds like: You pay a deposit (usually 10%) upfront, and you don’t pay another cent until the house is finished and you “turn the key” to walk in.
- Pros: You don’t pay mortgage interest while the house is being built.
- Cons: The build price might be slightly higher to cover the builder’s holding costs.
- Deposit Needed: Often just 10%
2. Progressive Drawdown (The “Standard” Build)
This is common if you buy a section first and then hire a builder. You pay for the land, and then the bank releases money in stages (drawdowns) to pay the builder as they complete work (e.g., Foundation, Framing, Roof on, Fit-out).
- Pros: You have more control over the build.
- Cons: You start paying interest on the loan as soon as the first payment is made. This means you are paying rent/mortgage on your current home plus interest on the new build at the same time.
- Deposit Needed: Typically 20% (though 10% is possible with specific lenders).
The “New Build” LVR Advantage
Here is the best news for Papamoa buyers: The LVR (Loan to Value Ratio) rules are different for new builds.
While the Reserve Bank makes it hard to buy an existing house with a low deposit, new builds are exempt from many of these restrictions.
- Investors: You often only need a 20% deposit for a new build (compared to 35-40% for existing rental properties).
- Home Owners: You can often build with just a 10% deposit.
Step-by-Step: How the Process Works
Step 1: Pre-Approval (Don’t skip this)
Building budgets often blow out. Before you put a deposit on a section in Papamoa East, come and see us. We calculate your borrowing power based on the “end value” of the home, not just the cost to build.
Step 2: The Valuation (As if Complete)
Banks require a “Registered Valuation As If Complete.” This is a report from a valuer that says: “Once this house is built on this land, it will be worth $1.1 Million.” This gives the bank the confidence to lend you the money.
Step 3: Fixed Price Contract
Banks hate surprises. They generally require a Fixed Price Contract from your builder. This guarantees the cost won’t jump up halfway through construction due to rising timber prices.
- Local Tip: Be careful with “PC Sums” (Provisional Costs) for things like kitchens and driveways. If these are too vague, the bank might say no.
Step 4: Code of Compliance (CCC)
Once the build is done, the Council issues the CCC. The bank will not release the final payment (or let you move in) until this paper is signed.
Watch Out for “Papamoa Specific” Issues
Building in Papamoa has unique quirks that out-of-town banks might miss:
- Peat Soil: Parts of Papamoa are built on peat. This often requires expensive engineered foundations (waffle slabs or screw piles). Ensure your build contract accounts for this, or you could face a $20k bill for “extra earthworks.”
- Covenants: Subdivisions like Palm Springs have strict rules on what you can build (brick types, fence heights). We ensure your finance covers these high-spec requirements.
Ready to Build Your Dream Home?
Building is exciting, but the finance paperwork is heavy. Let us handle the banks while you handle the colour charts.
We work with all the major lenders and construction specialists to get your Papamoa project across the line.
Book a Free Construction Loan Chat We can meet you on-site or at a local café in the Bay.
Lets Talk, We're Here.
Speak with a trusted mortgage expert today and explore the right options for you.
Phone: 027 438 4847 / 0800 124 024
Email: contact@easymortgage.co.nz
