When building a house, you will definitely come across and be offered construction loan options as it plays an essential role in making your dream home come to life. Unlike the standard home loan that you encounter, construction loans follow a different payment structure, which is why it is helpful to have a firm grasp and understand how it works. This article tackles some of your inquiries and also explains what is involved in the outcome…
What Is It?
It is a type of loan that can be taken out and placed towards new properties which means it is not applicable for established homes. It is designed to work in line with the building process, along with regular payments set up according to the completed stages of construction. These progress payments are easier to keep track of as opposed to a lump sum at the start of the project from your lender. There are some that may offer an interest-free loan for the duration of the build, minimising your costs for the time being. Meanwhile, other loans may alternatively offer you to only pay interest for the amount of money that is currently drawn out rather than the total sum. It is important to clearly check what your lender is able to provide in order to adhere to the rules and regulations they have set up.
How Are Payments Deducted?
The construction journey is broken down into five major building stages where the payment will be sent out during the commencement of each stage. The first step is known as the Base or Slab, which is where the payment will be covering the foundations of the whole property being laid down. The next step is the Framing which involves setting the house frames, roofing and windows to provide some structure. For the third step, the payment will be taking care of the Lock-Up which is when the external walls, brickwork, roofing and exterior are finalised. The following step is the Fit-Out where the payments will finance the internal fittings and fixtures along with securing the electricity and plumbing. The final stage is the Completion, which concludes with the payment funding, the cleaning of the property and any other painting or finishing up.
How Do You Apply For It?
In order to get a construction loan, you are required to present your income, expenses and assets to your lender in addition to the details of your building plans with the costs. Once the required documents have been submitted and your builder’s credentials have been reviewed, the lender will also request an evaluation for the estimated value of the property once it is completed. From the lengthy process, the lender will then calculate a specific amount which they believe is a sound investment from the valuation. In addition, try to keep in mind that how much they approve may not necessarily match the entire loan cost which means that your personal funds would have to pay the shortfall on top of any extra building fees.
What To Keep In Mind?
Before you fully commit to a construction loan, make sure to take note of the lender’s criteria and if it is best suited to your present circumstances and financial standing. For the down payment, you will usually be expected to provide at least 20% of the loan amount to get the ball rolling. As mentioned, there may be additional costs that can come to the surface which is why having a set budget beforehand can make all the difference.
When deciding if you’re ready to purchase a home, it’s important to consider all of your options. If you need any help figuring out if this is the right step for you, get in touch with one of our experts on 1800 184 284 or book a call today.