Construction Loans

Construction loans are really a version of a standard home loan which rolls out in stages as the different phases of your land purchase and house construction unfold. While you can readily get a loan for land purchase alone, if you are buying land with a view to construction and require funds for the land purchase, most lenders will try to set up the entire approval process for you from the outset.Your borrowing options are pretty much as broad as the home loan options available and your choices will naturally be driven by your personal situation.

There are typically five loan stages

Pre approval for your land and house purchase

Land purchase and formal approval for your land settlement

Builder selection and formal loan approval for the construction portion of your loan

Construction commencement and loan drawdown

Construction completion and switch to P & Ihome loan(if applicable)

preapproval

When you sit down with the mortgage broker, they go through your unique situation with you in detail to get a clear understanding of your current financial position and future plans. Then they will recommend a lender and a suitable home loan product. The final decision about which lender you go with is completely up to you and once made, your mortgage broker will cover what you need to do and when you need to do it in order to get through the process successfully! They will prepare your home loan application with you and along with your supporting documentation, submit it to your chosen lender for a conditional approval. When conditional approval is received, you can go ahead and sign your house or house and land contracts with confidence.

Land Purchase

Most lenders will require a commitment to a timeframe within which construction will commence if you seek funding to assist with the purchase of land alone. This timeframe can be as long as five years.

Construction Loan Approval

Allowed construction periods generally are not longer than two years. For construction approval, you will be required to present:

Your fixed-price building contract with a licensed builder, including proof of builder's insurance, current for the construction period. (If you are an owner builder, you will be required to present detailed costings including quotes and all relevant insurances)

Your council approved plans and specifications of the proposed residence

Construction loans require a level of flexibility and are therefore usually variable rate loans and typically interest only.

"Thank you" Tal Silberman for helping to arrange the finance for the construction of our new home in Dover Heights. Your knowledge and experience guided us to make a decision on which loan would best suit our needs."

Mark and Amy Gerstl, Dover Heights

Progress Payments

Once progress payments commence, your lender will most probably require inspections at each payment release point. Your building contract should nominate the number of progress payments for the construction, but there are typically four (slab or floor, framework, lock up and completion).

During the construction period, you would typically make repayments monthly on an interest-only basis, and many lenders now give you the option of making additional repayments.

Construction Completion loan switch

Once construction is complete, you will then typically finalise how you want to repay your loan. You might then switch to a principal and interest loan and choose to repay your loan in monthly, fortnightly or weekly installments.