There are more types of home loans than there are studio albums by Beyonce. One of the products that you might source is a construction loan in order to build a brand new home from scratch. If so, you’re almost guaranteed to sign a fixed price contract for the construction of the house.
A fixed price contract? Is that some kind deal on future repairs?
Not at all. A fixed price contract simply means that the price for the construction of the property is a set, pre-arranged sum. This means that you know exactly how much you’ll be paying for the build before any nails are hammered in, or any cement is poured. You’ll also have more certainty around the price.
So the sum in a fixed price contract will never go up?
Not quite. While the sum is fixed, most builders will put in what’s known as ‘provisional sums’ to cover certain elements whose cost can’t be worked out at the beginning of a project – light fittings, tapware or other such items. These are estimates – reasonable, researched estimates, but estimates nonetheless – and may change. There’s also a good chance the fixed sum will have a ‘risk premium’ included in it in case the cost starts getting out of control.
I suppose I should sign it straight away, right?
Actually, make sure to have a good read of the contract before you sign it, and check for certain red flags. Progress payments should cover work done and not time spent working, the value attached to various parts of the work should be reasonable and be sure you know the lifespan of warranties. Also check that you won’t be responsible for termite control. If there’s anything you’re unsure about or disagree with, discuss it with the builder.