Construction Loan Asset Finance Business Loans Home Loan Mortgage Broker Perth Melbourne Home Loan Comparison Co Dennis Smallwood - construction loan

How does a construction loan work?

A construction loan is no different to any other home loan, it is just the beginning set up that is different. The funding for a construction loan is accessed in stages. How many stages will depend on the amount of payments the builder has in their contract. Another factor is how many other items you have outside your building contract. This is where our know how can allow us to do a construction loan comparison and show you the best options.

During the construction phase, the loan is generally set up as an interest only loan. Meaning, during the construction phase, you are only required to cover the interest each month, not the full monthly repayment. Once the loans fully drawn down, it will revert to principle and interest repayments over the remaining term of your loan. The loan is also generally a variable interest rate during the construction phase, which does leave you at the mercy of an interest rate rise.

The steps you have for a construction loan?

Obtaining a construction loan requires a bit more planning than buying an existing property.

To apply for a construction loan the following steps would need to be considered:

  • obtain a Pre Approval so you know what your budget is;
  • finding the block of land you want, putting on an offer, obtaining formal approval on the land and going to settlement (and ownership) of the land;
  • selecting a builder with the right plans (and the right price) and finalising a building contract;
  • obtaining formal approval for the construction
  • construction of your home
  • move-in.

Finance Steps

If the land is in a new development there may be a longer time between the vendor accepting the offer and settlement. Therefore you may be able to organise your plans before settling on the land. This would allow you and your broker to complete just the one formal approval application. Also, if you are eligible for the First Home Owners Grant, this can only be applied for with construction contracts. So if you were to buy land, then wait to build, you would need to pay stamp duty on the land purchase, even though you are a first time buyer / builder.

Throughout the construction, your lender will make what is known as progress payments. The amount that needs to be paid and when will be outlined in the building contract. As a general rule they will be; Once slab is laid; wall frame up, Roof cover on, house at lock up stage, hand over. If you have organised for items to be completed outside the building contract, these payments will then be made to your contractor. Lenders do not like too many items to be outside the contract. However the items that could be outside the build contract may be; window coverings, floor coverings, landscaping, solar panels, pool.

How to do the best construction loan comparison?

Most lenders will have loans specifically for building and construction. The best way to find loan most suitable for you is to consult your expert mortgage broker Dennis Smallwood, who can do a construction loan comparison and compare loans from many different lenders to find one that suits your individual needs.

The Home Loan Comparison Co.  compares home loans from a much wider variety of banks than most people have time to consider, and we find the loan that suits your goals.

We are experienced, knowledgeable and dedicated to building ongoing relationships to keep on providing personal and valuable service that is rarely experienced when dealing with the banks.

Talk to us today.

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