What is a Building Under Construction Loan (BUC)?
Most of us prefer to buy a partially finished housing unit because it is cheaper. In addition, we have the advantage of selecting the most desirable location and living space. Buying early can result in significant savings because developers generally offer more benefits and discounts than fully completed housing units. Do you know that you can still make use of a home loan packaged as a BUC or building loan under construction? The same terms and conditions apply to both BUC and fully completed housing units. BUC Loan refers to a home unit or property loan made while the physical building is still under construction. This means that a legal certificate of completion has not yet been issued for the physical building.
Payment scheme
Most banks or credit institutions offer financing that works with the developer’s progressive payment scheme. This means that the bank usually follows the promoter’s default payment schedule, which is usually based on percentages. Percentages are set throughout the development process in which the developer requires a payment when a certain stage of construction is completed. From its schedule, the bank would release the loan in stages and when requested by the developer. Keep in mind that the monthly amortization of your home loan increases after each publication of the progressive payment schedule. Typically the developer would create a schedule similar to the example below
Level 1
Granting of the 5% Purchase Option, which covers the reservation commission
Stage 2
Signature of the Purchase Agreement 20%
stage 3
Foundation work – complete 10%
Stage 4
Reinforced concrete frame of the unit – complete 10%
The stages will continue until you receive the regulatory completion certificate. This is the time when you also pay off your BUC home loan in full. You may be wondering if you can get a different lender for each stage. Theoretically, yes it is possible, but it can mess up your personal repayment schedule with so many loan repayment schemes and terms and conditions to take note of. It is advisable to request at least one bank or lender for the entire BUC loan. The three most common loan packages are loans with lower subsequent rates, lower initial rates but higher subsequent rates, and fixed-rate loans. Choose what is most convenient and applicable to your financial situation. It would be wise to use the mortgage comparison calculator before applying for any loan package to determine its capacity, as well as find promotional home loans for new releases.