Construction Loans

How Do Construction Loans Work?

Construction loans are much like normal home loans and require the same checks by the lender – but with a few added layers. When building the lender will generally want to see the following with any application:

  • Formal building plans and specifications (council approval is not mandatory at application but required before the loan can be drawn down to start making progress payments
  • Fixed price building contracts including any variations and selections completed
  • Quotes for any out of contract items
  • Rental appraisal from a real estate professional if the property is to be used as an investment property

The lender will review the building costs and proposed plans, valuing the property based on what it should be worth at the end of construction.

When approved, the lender provides commencement to yourself and the builder to confirm they can start construction.

As the builder completes the important stages the builder will issue invoices for payment – these are known as progress payments. The lender receives these invoices and may require a payment form to be completed each time (Gerry will fill these out for you). The bank will generally confirm the works have been completed and then make payment for you – with the loan now increasing in size with each payment until it reaches the fully drawn down limit. You will only pay interest on the amount drawn down at each point. The common payment stages are as follows (but not limited to):

  • Slab poured
  • Building frame
  • Roof and brickwork
  • Internal fit out
  • Final fit out

Once the final payment is made, the bank will order a new valuation on the property to confirm the property is fully completed and the new value of the property. From this point your loan will convert to a normal home loan and you will be able to make any changes you like to repayments, whether to fix your loan – Gerry will be able to assist you with this.

Need help with organising a construction loan? Contact Gerry Bosco today on 0478 538 537