Lockup: This is an amount to help you put up the external walls, and put in lockable external windows and doors (hence the term ‘lockup’, to make sure your house is lockable).It can cover partial brickwork, the roofing, trusses and windows, as well as insulation. Frame: This is an amount to help you build the frame of your property.It can cover the levelling of the ground, as well as the plumbing and waterproofing of your foundation. Slab down, foundations or base: This is an amount to help you lay the foundation of your property.Progress payments will typically be paid directly to the builder at the completion of each stage, and the borrower will then need to pay the money back to the lender, along with interest and any fees that may apply.Īccording to major lenders Westpac and Commonwealth Bank, some of the typical stages or milestones at which a lender may make progress payments under a construction loan include: Once a construction loan has been approved and the property is being built, lenders will generally make progress payments throughout the various stages of construction. Your lender may also request an invoice from your builder for the cost of the work done. You’ll typically need at least a 5% deposit, keeping in mind that you may have to pay lender’s mortgage insurance if your deposit is less than 20%.įor each stage of the construction process, you’ll usually have to confirm that the work has been done, complete and sign a drawdown request form, and send it to the construction department of your lender. A larger deposit can help to convince your lender that you are a less risky borrower. This acts as a form of security at this stage of construction. You will then have to make a deposit, as you would with most other types of home loans. If your loan is approved, your lender will give you a loan offer. The lender will typically also require further property valuations and inspections during the project. This is because when you apply for a construction loan, the lender may consider the expected value of the property upon completion of construction, as well as the total amount required to borrow in order to pay the builder. You’ll also be subject to normal lending criteria, meaning you will most likely need to provide details of your income and expenses and your credit score could prove an important factor.Ī property appraiser will then typically estimate the expected value of the property when completed. You’ll typically need to provide the lender with documents, including council-approved plans and building specifications, a copy of your fixed-price building contract with a licensed builder, and any applicable insurance documentation (such as a copy of your builder’s public liability insurance and builder’s risk insurance). Getting approved for a construction loan is generally a different process to applying for a standard home loan to buy an existing home. It could be a wise idea to seek professional financial advice when considering your options. Or, for renovators, there could be the option to refinance an existing mortgage or take out a personal loan. You may also be eligible for government grants and concessions, particularly if you are a first home buyer, for example. Of course, a construction loan is just one potential source of funding for your project. Some lenders may also ask you to make contributions to the loan from your own savings, or to provide evidence that you will be able to afford the full loan amount.Ī number of lenders offer construction loans that are interest-only during the construction period and then revert to a standard principal and interest loan once your home has been fully built. You generally only pay interest on the amount that is drawn down, as opposed to on the whole loan amount. This means you may receive instalments of the loan amount at various stages of construction, rather than receiving it all at once at the start. It has a different loan structure to home loans designed for people buying an existing home.Ī construction loan most commonly has a ‘progressive drawdown’. A construction home loan is a type of home loan designed for people who are building a home or doing major renovations, as opposed to buying an established property.
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