Construction Loan

There are plenty of pros to buying off-the plan: you can design your home exactly how you want it and get to live in something completely brand new. The biggest catch is funding your dream.

Construction loans are similar to home loans but there are extra steps involved. They can confuse even the best of us. But with the help of a construction loan specialist, – like the ones at Mortgage24 – they can help you navigate the necessary hurdles that come with construction. Here are some of the finer details you can expect to come with a construction loan:

Extra documentation

Extra paperwork is involved in applying for a construction loan. When applying, you will need to present the building contracts and plans of construction to your broker. In addition, to your standard finance, income and identity documents that come with arranging for finance on a home.

Loan Structure

If you are buying house and land, you may end up with two separate loans throughout the build. One loan is for the land and another for the home under construction. The two loans may have slightly different interest rates and repayments throughout construction. Your broker can guide you through how to make the right repayments and when throughout construction.

Don’t worry, at the end of the build, you can always combine the two loans into one.

Payment Schedule

When you apply for a construction loan, the loan is paid out in stages.

The foundation stage – when the concrete slab is poured.
The frame stage – when the frame is built.
Lock up – when the front door is added and your home can be ‘locked up’.
Fixing – The final stage when your home is ready to live in.

Construction loans are set up like this to keep things fair between builders and clients. Throughout each stage, withdrawal requests are filed and paid to your builder in the form of progress payments. A withdrawal request is a form filled out by you and the builder when each stage is completed.

Construction loans can be a lot to think about. Mortgage24 is here to explain the entire process.

The Construction Loan Process

Contact Mortgag24

It’s always great to meet with a broker first and work out exactly how much you can afford to build with. Mortgage24 can help you get pre-approval, explain the whole construction loan process to you and help you make informed decisions about your build.

First Home Owners Grant (FHOG)

Check to see if you are eligible for any First Home Owner grants, through your state governments website. If you are eligible, your broker can help you use this grant as part of the payment for construction.

Select a builder

Time to meet with your builder or developer and design the home of your dreams! A good builder will flag when it is time to return to your broker about a construction loan and they will also want to be kept in the loop with the loan side of things.

Submitting paperwork

Once you have picked a home you like and have signed the initial contracts. You can forward the contract and construction plans to your broker who will then work with the lender and help you get approved for a construction loan.

Paying your deposit

Once you pay your builder the initial deposit. Construction begins, you will work with your broker and the lender to clarify how much you and the lender will contribute to progress payments and when they are required.

Build, progress pay, repeat.

As the building progresses to certain stages of the build. The builder will contact you and your broker to organise progress payments. Your broker will co-ordinate between you, the lender and the builder to organise the release of progress payments. This will happen at every stage until construction is complete.

Final Payment

As construction draws to completion, you need to hand over some critical documents.

Certificate of occupancy – provided by your builder
Building insurance – organised by you with the insurer of your choice.

Once your broker and the lender have these documents, the final payment can be made and the full mortgage officially begins.

Move in Time!

After many months of building, it is time to finally move in to your brand-new home.

Buying off-the-plan can seem daunting at times but it comes with so many rewards.

A good broker can make a world of difference. If you live in Australia and looking to borrow for the home of your dreams, contact Mortgage24 today!