When doing the knock down home construction, one question that haunts every homeowner is that whether to inform about this knockdown to the lending bank? It isn’t easy to determine what exactly you have to disclose to your lender. There are numerous things homeowners aren’t aware of that are essential to reveal regardless of whether you’re seeking loans or already have loans. If you have a good knock down builder like New South Homes they would guide you regarding this, but if not we are here to help you out. 

What is a knockdown rebuild?

The concept of a knockdown rebuild could be used in the search for development sites that can be used to construct townhouses to rent or sell.

Although it isn’t mentioned frequently in conversations it can make sense from an architectural and financial perspective.

Knock down reconstructions are projects that accomplish exactly what they promise to do for property developers. It is the process of tearing down walls and re-building an existing property to either rent, sell or transform it into a contemporary suitable property for the current owner…

Although, it’s a long development process. Similar to other processes, it needs an analysis of feasibility to determine whether it’s the best option. This is because knockdown reconstructions have four phases: design of the home and site evaluation demolition, as well as building of the brand new house townhouse, apartment or townhouse.

Similar to every other development project you will require a design as well as an in-depth analysis of the land as well as the space around it. Additionally, you must obtain permits, which include demolition and asset protection permits. This can also include various changes to your landscape based on the concept.

However, even though it’s not easy and could take longer, it has many advantages when it comes to renting or selling strategies for developers.

Do you have to notify the bank of the knockdown repair?

In this scenario, the rules are straightforward: If your financial institution has your property for security purposes, then you should disclose that you’re considering an unfinished rebuild. This is the case regardless of whether you use the cash you have on hand to fund the project and you are not seeking any loan currently in place.

As you are a mortgagee the bank has an obligation on your home that is equal to the remaining balance of the loan. You aren’t able to demolish what is , in a sense, as the property of the bank. The bank would have no collateral for the loan, nor would it have the money.

The reason is that tearing down the home will alter what the house is worth. It might not be by any amount, and it may increase once the construction is finished, but until then the property is empty land or a partially constructed house.

You sign lots of cross-checks on mortgages and related documents confirming that you will be the owner of the property, which includes all the structures, not just the land. In law, you are required to keep the contract.

Furthermore, you need to make sure that any other loan you’ve partnered with that property (whether it’s a family loan or business loan, or a guarantee from your family) is addressed prior to the property being knocked down. Any lender that holds the property as security may have a valuation request at their discretion . So, they could find out if you have disclosed it to them or not!

What is the alternative?

It is possible to request a construction loan through your lender. They’ll require that you have a valid construction contract and will review your request for money to construct. All the standard lending conditions will be applied, including an evaluation of your earnings, financial status, etc.

The most effective option is to be honest and open with your bank, or connect with a broker and find out what options you have.