Construction Home Loans - Build A Home

When you decide to build a brand new home, you're creating a unique place to live that's all yours. You'll be the first person to live there, and you get to make all the choices about the layout, interior design and materials that your home is built from.

There is a lot more effort and emotional investment involved than if you'd chosen to buy a standing home, a couple of important reasons why you want a good mortgage broker at your side for each stage of the construction to take care of all the financial hurdles that might arise.

The time and effort you put into to preparing to build your own home will reduce stress on you later on, and make the process exciting rather than hair-pulling. And it'll be worth the hard work in the end when you finally get the keys to the property you chose to create.

It’s yours, designed by you, just for you, and you’ll be the first person who lives there. That’s a pretty special experience. At Positive Home Loans our mortgage brokers will make sure you have a Positive experience from the planning and saving stages to your first night in your new house.

What is a Construction Home Loan?

Most of our lenders offer a mortgage tailored specifically for borrowers who are building their own home.

When you decide to build instead of purchasing an established property, you unlock access to a different home loan structure which is designed especially to cater for each financially significant stage of the building process.

A construction home loan usually has a key feature described as a ‘progressive drawdown’. You increase the total amount you've borrowed gradually as you need to make each payment during the construction phases. The key advantage of this structure is that you never borrow a greater figure than the value of the actual property you have ownership of, at that particular time, to provide as security for the mortgage.

The total amount you can borrow is partly determined by the estimated value of the property once construction is completed.

During the first twelve months, you will usually only need to pay the interest on the total amount borrowed. This total amount will increase as you progress through each key construction phase after the purchase of the land.

At the end of the 12 months, you will begin to pay off the principle of the loan amount as well as the interest, and you'll be well on the path to owning a property all of your own.

How do progress payments work?

There are 5 key stages at which your lender will make a lump sum payment, increasing the total amount borrowed at that point:

  1. Slab down/base
  2. Frame construction
  3. Lockup
  4. Fit-out/fixing
  5. Completion

As the loan is progressively drawn down, you’ll only be making repayments on the funds that have been paid out so far.

This makes the process of building a property a bit less stressful, by reducing the amount you’re paying for the mortgage during the construction process.

You do have the option of using a standard home loan if you have enough equity in the block of land or other properties, and you don’t need to use the house that you’re constructing as security.

This is an option that owner-builders might consider, so you have access to the full loan amount from day 1. This will give you the ability to pay construction costs as they fall due, including small incidental costs.

The disadvantage is that you pay interest on the full amount right from the start. If you have a loan with an offset account, you can reduce this by putting the unspent construction money into a 100% offset account.

To work out what the best option for your own circumstances will be, book a free consultation with one of our construction loan brokers today by filling out the form below or calling 1300 366 287.

What else do I need to know about Construction Home Loans?

When you’re building from scratch, things don’t always go to plan. There are a few things you need to know to keep everything on track, and to make the freedom of building your very own home a smooth journey.

  • Fixed construction period
  • There will usually be a fixed period the lender allows for your house to be built - from 6 to 24 months. There could also be a set time frame from the settlement of the purchase of the land to when construction must commence.

    If there are set time frames, make sure you have everything in place to meet them or contact your lender for an extension. Your broker will be able to help you with negotiations through this process.

  • Progress fees
  • There might be fees attached to each payment, or a single fee that covers all the payments. For example, there might be a single fee of $700 to cover all the draw-down payments, or there might be a fee attached to each payment of between $0-250.

    So in total, you’ll be paying up to $1000 to receive construction payments.

    Make sure you understand how much the loan will cost in total before choosing your construction loan.

  • Paperwork
  • As well as the ordinary documentation related to your financial and employment situation - payslips, bank statements, proof of identity - you’ll also need the documents relating to construction. Essential documents include:

    • building permits
    • Fixed price building contracts
    • building plans
    • building insurance

  • Contract variations
  • The process of building a home doesn’t always go exactly to plan. You can run into roadblocks such as not being able to get hold of the materials you’d planned to use on time, issues with labour, and so on.

    Our lenders understand this, so if anything unexpected does come up, get in touch with your lender to and inform them of the changes. Any variations can be assessed and your loan structure adjusted accordingly.

  • Owner-builder restrictions
  • If you’re not using an independent licensed builder, banks tend to see you as a ‘higher risk’, and this can affect how much you’re able to borrow, and the terms of the loan. Your broker will be able to help you to find the best home loan solution.

Building Your First Property - The First Home Construction Grant

If you’re building the first home that you will own, you might be eligible for a Government Grant. These vary between the States and Territories. For more information on what you might be eligible for, read more here.

Your mortgage broker will be able to help you with an application for the grant if you qualify, taking out some of the hassle and stress, and saving you a lot of money in the process.

With a construction mortgage, it's super handy to have a mortgage broker on board to smooth over hiccups that could occur along the way. To get more information on how a construction mortgage can help you build a home, complete a pre-approval enquiry form or call us on 1300 366 287.

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