Construction loans are specifically designed loans to enable you to build a new home.
There are generally two ways that construction loans are structured:
- As a package - where the house and land is managed with one loan.
- As a split loan - one loan to purchase the land and a second loan to complete the construction phase.
A house and land package where building contracts/tenders are available at application stage means the lender can conduct a valuation based on an "as if complete" value. This enables the lender to determine if the proposed house and land package will be suitable to take as security for the loan.
The second type is more common with people having to purchase the land before house plans are available. In this situation, we establish one loan to purchase the land with a second application for an estimated build price submitted to the lender for pre-approval. This provides you with the confidence that you should be able to obtain the remaining funds required to complete the build. When you are ready, we submit your fixed price contract and plans to the lender to obtain formal approval.
Construction loans are different to traditional loans with payments made via progress payments requests. At each phase of construction, your builder will provide you with an invoice for payment. We send this invoice with your authorisation to the lender whom then pays the builder. At certain phases, a valuation may be required to confirm construction has progressed to the payment stage requested. The normal stages for payment are deposit, base/slab, frame, roof, fit-out and on completion.
Tip: If items such as floor coverings, blinds, driveways, fencing and landscaping are not included in the builders contract obtain separate quotes to the contract and these can be included in the valuation and possible enable you to borrow more funds to complete the build.