A construction loan is a specialised lending option for builders or renovators to help them through the process. These can be construction loans or home loans that have a construction facility.
The significant difference between new construction loans and normal loans is that you only pay interest payments on the loan amount drawn down as you progress through the construction process.
If you pay cash for your land and then arrange a construction contract with your builder, they will ask for a progress payment upon the completion of a specific stage of the project. Unlike regular home loans where you typically receive a lump sum of the loan amount at settlement, construction loans are paid out in periodic progress payments from the lender at different stages of construction.
In some cases, clients are not sure of what they want until some of the possibilities or ideas they have are brought to life as potential scenarios. We will inform and educate you on what might be possible in securing your financial future, and go through the advantages and risks of each scenario to help you make an informed decision, with a clear idea of how to manage things going forward.
Key Points to Consider with Construction Loans
You’ve decided to build your own home and have found a licensed builder you trust to realise your dreams. Our Construction home loan options give you the funds you need to enter into a building contract and make it happen.
Our Construction home loan is also available if you’re planning on constructing additional rooms, making structural renovations or repairs, and for knock down and rebuild purposes.
Documents Required By the Lenders
Before an ‘Authority to Commence Construction’ is issued, Lenders will generally require the borrower to provide them copies of:
• Council approved plans and building specifications
• Fixed price building contract with a licensed builder (signed and dated)
• Builders risk insurance (or builders public liability insurance);
• Homeowners’ warranty insurance (if applicable).
What is Progressive Payments?
A progressive drawdown – or progress payment – is the portion of your loan funds we release at each stage of construction. If you’re using a registered builder, the lender will pay them direct at each stage of the build. The lender will also need to see the builder’s invoices as well as a progress claim certificate.
If you’re an owner-builder, the lender will release the funds to you when they get itemised invoices and receipts – and provided you meet all other requirements. The lender will require these at each completed building stage. Importantly, they must match up with progressive payment schedule agreed to when the loan was approved.
Paying Interest Only
Construction loans are designed to ensure you don’t draw more than you need – or exceed the construction costs you’ve budgeted for. That’s why most construction loans begin with an interest-only period. This means you’ll be paying interest-only – and only on the amount you’ve drawn down.
Stages In Construction
As each stage of construction is completed, all borrowers must ensure that the building work has been carried out to their satisfaction before authorising invoice payments to the builder.
Methods of requesting invoice payments are explained upon approval of your contraction loan.
The following table is an example regarding payment percentages for each stage and may vary depending of each lender.
• Stage 1 Foundations/Slab (including deposit) 20%
• Stage 2 Frame 20%
• Stage 3 External lining 30%
• Stage 4 Lock-up/Internal lining 20%
• Stage 5 Practical completion/final stage 10%
You don’t need to shop around, G-Force Finance Solutions will do all the legwork for you. We are your one stop finance solutions shop. We offer a wide range of loans from the banks and other lenders. We’ll help you compare your current loan to all the loans on our panel, helping you find the one that’s just right for you saving you lots of time, and potentially thousands of dollars.
Visit our Loan calculators today and take the next step by clicking the “Quick Quote” Button and our finance advisers will then get to work on sourcing you a tailor made Home Loan package from our trusted panel of lenders and will work tirelessly to get you the right solution.