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What is a Construction Home Loan?
Unlike a regular Home Loan, Construction Home Loans let you borrow from the bank to build a home, instead of buying one.
The biggest difference between this type of loan, and a regular home loan is that you will receive your loan amounts based on the construction schedule, i.e. based on the costs of construction. The property value is also estimated based on the completed property which is used to calculate your LVR.
Furthermore, you may also need to include the cost of the land into your loan (unless you already own an empty piece of land).
Lastly, Construction Loans are deemed more risky by lenders, so you will need to have a good credit history in order to increase your chances of getting approved.
How are the payments released in a Construction Home Loan?
As mentioned earlier, lenders will release various amounts of your loan based on the construction schedule, or the stage the construction is at.
- Slab – This is when the foundation, plumbing, and others are being laid, and is around 10% of the property value.
- Frame – The second amount is released when it is time to build the frame of the house, and is used to pay for brickwork, roofing, windows, and more. This amount can be around 15% of the property value.
- Lock up – This is when your builders are ready to build walls, doors, and windows that actually let you lock up your house.
- Fixing – This amount covers all your internal fixtures including tiles, cabinets, shelves, gutters, plumbing, electrical lines, and more.
- Completion – This final payment is used to cover all pending payments, as well as any final work on the property such as fences, painting, cleaning, and others.
The benefit of lenders making these types of progress payments is that you are only paying interest on the amount released, and not the total loan amount. However once the property is completed, the loan will be reverted into a standard mortgage with principal and interest repayments.
Are there any incentives for anyone building their first home?
Yes, there is a government scheme called the Homebuilder Grant that grants you $25,000 for building your first home.
For more information about this grant, and to see if you meet the eligibility criteria, you can contact your local State Revenue Office, or speak to your mortgage broker.
Is the loan application process the same for Construction Loans?
Can I get a Construction Loan to renovate my property?
Yes, you can still apply for a construction loan if you are planning any major renovations on your existing property.
Can I get a Construction Loan for other types of property?
How much will I be able to borrow?
Your loan amount will depend on a variety of factors, including your income, current holdings, credit score, and more.
Quickly find out the estimated amount you could borrow based on your current earnings and expenses.
Can I get a more detailed assessment?
Get a no-obligation, personalized assessment from one of our expert mortgage brokers at ZERO COST.