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Construction Loan
A construction home loan is for building a house instead of buying one that's already built. It works differently than loans for existing homes.
How Construction Loan work?
A construction loan typically involves a gradual disbursement of funds. In other words, you access the loan or increase your borrowing as necessary to cover the construction progress payments. The borrowing limit depends, in part, on the property's value once the construction is finished.
Typically, a construction loan starts with interest-only payments for the initial 12 months and then switches to a regular principal and interest loan. After approval and the commencement of property construction, lenders disburse progress payments at different stages of the building process.
Generally, payments are disbursed upon the completion of five stages:
1. Foundation stage or slab down: This amount is intended for establishing the groundwork of your property, encompassing ground leveling, plumbing, and waterproofing of the foundation.
2. Structural frame: This amount is allocated for constructing the frame of your property, including partial brickwork, roofing, trusses, and windows.
3. Lockup: This amount is designated for erecting external walls, installing windows and doors, ensuring that your house is securely lockable.
4. Interior fitting or fixing: This amount is set aside for internal fittings and fixtures, covering plasterboards, partial installation of cupboards and benches, plumbing, electricity, and gutters.
5. Completion: This amount is for concluding contracted items such as builders and equipment, along with any final touches like plumbing, electricity, and overall cleaning.
Application process of a construction loan:
1. Document Preparation and Application Like other types of home loans, applying for a construction loan requires the submission of personal identification documents and pay slips. Additionally, specific documents related to the construction project must be provided, including council-approved plans and specifications, a signed and dated building contract, and the builder's civil construction insurance and work injury insurance.
2. Bank Approval After submitting the application, the bank reviews the documents. Simultaneously, a bank appraiser assesses the property based on the construction contract.
3. Loan Settlement Before progress payments are issued, the loan applicant must submit a withdrawal application and receipt to the bank. The bank disburses funds to the builder once all requirements are satisfied.
Is a Construction Loan Right for You?
Building a new home can offer flexibility and customization, but it requires careful planning and financial management. Construction loans allow you to manage the cost of your build in stages, but it's essential to understand the costs involved and the process before committing.
💼 Need Help with a Construction Loan?
If you're planning to build your dream home and need assistance with securing a construction loan, contact Aaron today for expert advice. He’ll guide you through the process, compare options, and ensure you get the best deal possible.
📞 Call Aaron Today: 0481 177 888 or fill out the contact us form to start the process!
💼 Refer a Friend
Know someone building a home? Refer them to Aaron! He can help them navigate the complexities of construction loans and find a loan that fits their project needs.
📞 Call Aaron at 0481 177 888 or fill out the referral form to start the process!
You may get a free valuation from our professional brokers via the information you provided on our website. Alternatively, you may call us directly. We look forward to help you in finding the right home loan for you.