Construction loans
Build the home of your dreams with a ‘progressive draw’ construction loan.
Construction Loans
If you want to build your own dream home, a construction loan will allow you to draw the money progressively, as you need it. With other home loans, you will get the loan amount as a lump sum, which means you will also need to start paying interest for the entire amount. With a construction loan, lenders will typically disburse the money you need for each building stage.
Construction of a home usually has five stages, namely purchase of the land, the pad or the floor, roof, lock up, and final or finishing. Often during the construction or ‘draw down’ phase the lender will charge the full standard variable rate (SVR) When your construction is complete, you can then choose what kind of product or loan type such as a ‘professional pack’ discount will apply to the remainder of entire loan term.
What do you need to apply for a construction loan?
Typically, lenders will require to see fixed-price building contract and council approved plans. The value on which lenders will estimate the whole package will be the land’s value plus the cost of the building. In case you will need more money for furnishing and landscaping, you can ask your lender to revalue the property once the construction is complete.
The progression on which you will get the money for construction will be based on how fast you complete each phase. As soon as you finish one phase of construction, you will be able to go to the next and draw money. A valuer usually does the job of checking whether the phase is complete based on the parameters set by the fixed price building contract.
A construction loan is a convenient and safe way to fund the building of your new home. Aside from saving interest, it allows you to borrow money against the value of the completed property and not just the current value. The fact that the bank controls the flow of funds also protects you from cost over-runs and minimises the chance that you will run out of money before your construction is finished.