Construction Home Loans
If you want to build a new property or renovate an existing one, a construction home loan is one of the best ways to finance it.So, how easy is it to get suitable finance and how does it work?
Construction home loans help you purchase land, construct a residential property on land already held and/or complete the land purchase and construction. Financing a major renovation or building a new home is very different from buying a property.
A construction home loan allows you to make minimum repayments until construction or renovation is complete. They do this by limiting the borrowing at each stage of construction, plus they are often interest only during the construction phase.
There are typically five loan stages:
1. Pre approval
The first step to arrange suitable finance, which is where we come in.
2. Land Purchase
Selecting and purchasing suitable land is a critical step. A mistake here will cause major problems during the construction stage, so proper site investigations by properly-qualified professionals is a must.
3. Builder Selection
Allowed construction periods are generally no longer than two years. In order to grant a construction home loan a lender requires a fixed price contract form a licensed builder; council approved plans and specifications; written details of any work to be carried out by you, or your family, friend or sub-contractors; and proof of current builder's insurance.
4. Construction Starts
Funds are drawn down as the builder completes various stages of your home. Your building contract should nominate the number of progress payments for the construction, but there are typically four:
- When concrete or timber flooring is laid
- When the framework or walls are up
- When the house reaches lockup stage
- On completion
Lenders normally get involved in the management of the project. For example they will set up a schedule of progress payments for paying the builders.
5. Construction Complete
Once the property is built, the loan will normally revert to a standard principal and interest variable loan, although they can be set as a fixed interest loan as well.
Gather the information you'll need to apply for the construction home loan:
- A fixed price contract from a licensed builder for the construction
- Council approved plans and specifications of the proposed residence
- A copy of builders insurance which must be current during construction
Talk to Home Loans Perth about getting your project valued:
- We'll allocate a specialist valuer to your project
- The value of your completed project will be estimated
- The valuer will check the progress during construction - to make sure the work has been completed as stated and to approve the builders progress claims
- Once completed, the valuer will confirm a final valuation of your property
Paying your suppliers:
This is done by providing us with a copy of your builders invoice along with a request for funds at agreed intervals. Often this is:
- At the concrete or timber flooring stage
- When your framework is done
- Once you can lock up your property
- On completion of your project
- The valuer will be asked to confirm the works stated
- We will approve the claim and pay the amount direct to your builder