Construction Loans

What are construction loans?

Construction loans are slightly different from regular home loans, due to building works requiring ongoing payments as the construction progresses. 

In a traditional home loan, all the funds will be made available in a single lump sum, while a construction loan lets borrowers draw on the loan balance when payments need to be made to the builder. 

These payments are made at key stages of the building process, and are known as progress payments.

During a construction, you normally only need to make interest repayments on money that has been drawn down. This means you will only be paying interest on money that has been used. 

Therefore, repayments will be smaller at the start of your loan, and will increase gradually as your construction project approaches completion.

Lenders also often set a maximum timeframe for the complete draw down of your loan, usually around 6-12 months, but can vary. 

If you are not planning to start building right away, you may need to purchase the land on a separate land loan.

 

Building or renovating guide

If you are considering building or renovating, this guide covers everything you need to know from financial considerations to the loan options that are available.

 

How do construction loans work?

If you're thinking about building or substantially renovating your home, you may need a construction loan.

In this video, Emma explains how construction loans work and what makes them different from other types of home loans.

Watch our video to see if a construction loan is suitable for you.

 

 

Application

Much like a traditional home loan, your lender will have a look at your income and savings, to judge your capacity of repayment. 

Additional documents will be needed for a construction loan, such as a fixed price building contract, building plans approved by Council, a copy of your builder’s licence, etc.

 

Making progress payments

Funds will be provided in a series of payments. These will be made at various milestones of the building process, outlined in your building contract. 

The six stages of construction are typically the preparation, followed by the slab (or base floor), frame, lock up, fit out and finally, completion.

 

Home is complete

Before making the last progress payment to your builder, your lender will inspect the property and need a few last documents for a final valuation. Once the final payment is made, your loan will switch to the standard home loan or loan package that you have agreed upon.

 

You are now free to move in!

Celebrate with friends and family, and make a fresh start in your brand-new home!

 

Contact Craig Wakley and the team at Mortgage Choice on 0421 232 987 or email cwakley@mortgagechoice.com.au