Construction Loan*
What is a Construction Loan?
A Construction Loan is a regular home loan with a few extra conditions that apply to the loan, until the construction of the dwelling is completed.
On satisfactory completion of the construction, the extra construction conditions are removed as the Construction Loan converts to a regular home loan, home equity loan or other possible loan of your choice.
How does it work?
Construction of the dwelling will be completed in stages. There are usually 5 stages which are commonly known as Slab Stage, Frame Stage, Lock Up, Fit Out and Practical Completion. As each stage is completed, your building contractor will issue you with an invoice, calling for payment of the work completed. If the work has been completed to your satisfaction, you authorise the lender to pay the builder.
This means that the actual loan is drawn down gradually through ‘Progressive Payments’ to the building contractor, with the full loan amount usually being drawn down by completion of the construction. Sometimes, on completion of the construction, there are extra loan funds made available to the borrower which can be used for other worthwhile purposes like Window Furnishings, Landscaping etc.
As the loan will be drawn down gradually over time, this means that you will not pay interest on the full loan amount from day one, but on a progressively increasing portion of the loan up until the full loan amount is drawn.
You can also use your loan to firstly purchase or refinance vacant land and then follow on with the construction of a dwelling at a later date.
Construction funding is available in the form of a Low Doc Loan, No Doc Loan or Bad Credit Mortgage and can also be combined with a Debt Consolidation Loan.
Building a dream or beginning of a nightmare?
Purchasing a piece of land and building that dream house can be an exciting and rewarding experience but it can also quite easily turn into heartache. Whether your project remains the dream or becomes a nightmare will depend upon how well informed and prepared you are, how much time you are prepared to dedicate and the experience and support of your mortgage broker/lender in arranging and administering your construction finance.
Understanding the building process, the building contract, the loan process and all other paperwork plus finding time to stay in touch with your lender and builder so you can successfully co-ordinate the process, can be a really time consuming and daunting experience if everything is left to you and you alone.
The co-ordination of the building process and construction finance can be tricky, therefore you will need the close support of a mortgage broker/lender who not only has vast experience with construction finance but who has also been through the building process themselves. CommunityBE$T has been involved with house & land projects for many years and has vast experience in arranging the right type of construction finance and co-ordination of the whole building process.
Here’s a tip
Arranging your finance, researching and carefully costing the project well before committing to the building contract, is very important. The first step to building your dream house is to know your maximum borrowing limit, because without knowing this, you could find yourself signing a building contract which will leave you without sufficient funds to complete the entire project.
Be careful in understanding;
- What the building quote/contract does not include?
Items like curtains, security screens, floor coverings, light shades, telephone and television connections, data cabling, antenna, clothesline, driveway, footpaths, paving, turf, landscaping, fencing, air conditioning are generally not included. It is not uncommon for these items to add an extra $10,000 to $30,000 to the contract price!
- What are the PC allowances in the building quote/contract?
Pay particular attention to the PC (prime cost) allowances in the building contract. Allowances for doors & door furniture, tapware, kitchen & bathroom fit out, whitegoods, floor coverings, tiling, paving, lighting etc may result in a lower grade finish than your expectations. Any variation you make to the contract PC allowances may need to be funded from your own pocket?
Construction Loans are specialist loans and need to be correctly structured and administered to aptly suit not only your personal requirements, but also your Builder’s Construction requirements.
So don’t take chances with a normal mortgage broker or lender, make an appointment to meet with a CommunityBE$T Construction Funding Consultant who will guide and support you through the whole process of costing the project, and arranging finance that will support the requirements and co-ordination of the building process right up until you have actually moved in.
To make an appointment, phone the Finance Centre on (02) 4633 8700 or email us and we will contact you. * Loans subject to application and approval. Terms, conditions and eligibility criteria apply. Fees and charges may be payable. |