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What Is a Construction Loan?
The Australian dream, building a new home on an empty block of land. It doesn’t get much better than that and financing your dream home begins with construction loans which allows you to finance the build of your dreams.
Generally, borrowers seeking a loan to build a house on land apply for a land and construction loan. This type of home loan means the loan covers the purchase of land and the cost of construction. Bundling the two together removes the risk for the lender where the finished home is valued less than the loan size.
How Do Home Building Loans Work?
Home construction loans work differently from regular home loans. Once your lender approves your loan, instead of transferring the total loan amount to you, you will receive the funds in instalments called ‘progressive draws.’ You will be advanced the funds ahead of each stage of the construction project so you can pay the builder in line with your builder’s contract. Repayments at this stage are typical interest-only. For example, if you have taken out a home construction loan for $700,000 but have only drawn $200,000 of it, you will only pay interest on that $200,000. The total principal and interest payments won’t begin until your house is complete, all funds have been drawn, and the builders have handed over the key.
The number of stages during a build can vary from builder to builder. Generally speaking, there are five stages.
Foundation
Excavating, levelling and laying your home’s foundation and concrete slab
Frame and Brickwork
Building the main structure, including roofing and insulation
Lock Up
Securing the primary structure by installing windows and doors
Second Fix
Completing interior architecture by plastering a sealing the property
Completion
Final touches, including painting, fittings and appliance installation
Getting a Construction Loan
Construction loans used to build your dream house on the Gold Coast are much more complicated than a standard home loan. There’s more paperwork involved, so it’s important to partner with a mortgage broker you trust to help guide you through the process. Here’s how the process works:
1. Choose A Broker You Trust
Choose a mortgage broker who can offer you a competitive rate suited to your needs. Unsure where to start? Give us a call and our Crest Lending specialists will advise on a construction loan for you.
2. Determine Your Borrowing Power
Like any type of home loan, you will need to determine how much you can afford to borrow. Review your credit history and current debt to better understand your financial situation before applying. To get an idea of how much you can borrow use our Borrowing Power Calculator.
3. Have a Deposit
You will need a deposit, or at least some form of equity to refinance, in order to be eligible for a construction loan. In addition, make sure you have evidence of your income and expenses that prove your ability to save and make repayments on your mortgage.
4. Obtain Detailed Construction Plans
Your lender will want detailed building plans. Make sure you have these before you apply. Your lender will ask for this to ensure the value of the home construction loan will not be lower than the loan you are applying for. During the application process, your lender will ask for the following documents, which your builder will be able to provide to you:
- Council approved plans
- Builders contract
- Builders insurance
- Your chosen builders licence
5. Final Steps
Before your home loan to build a house is approved, your lender will review documents and complete a land valuation. Once approved, construction can begin, and your lender will begin your progressive draws.
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What Happens To A Home Construction Loan When Construction Doesn’t Go To Plan?
Building is rarely a straightforward process. There are often disruptions due to weather, supply shortages, labour challenges and changes made to the original building contract. If you make a minor change to your building plan that does not have a significant impact, you can try and pay for it yourself instead of changing your loan contract and potentially incurring extra fees. However, if you decide to make structural changes, such as putting in an additional bathroom, you’ll need to speak to your lender to reassess your loan.
Buying Land and Building A House
There are many benefits to buying land to build on as opposed to buying an established home. Not only will you have a brand new home built with your own personal touches, but there is also the opportunity for financial gain. When you choose the right block of land in the right area, the value of your home is more than likely to grow over time. Additionally, you may be eligible for government grants like first home buyers, which can take the pressure off your mortgage.
Our experienced mortgage brokers can help you find a competitive option that will allow you to build the house of your dreams while still achieving your financial goals.
For more information on buying property check out our Home Buyer Essentials Guide
Building A House On The Gold Coast
The beautiful Gold Coast is a fantastic place to build a home. The coastal city offers a laid-back lifestyle full of opportunity. Crest Lending’s mortgage brokers have been in business for years, we know the Gold Coast area better than anyone. We’ve watched the trends in the market and seen once forgotten suburbs boom. We work closely with you so you can achieve your property goals by finding you a competitive construction loan that will help you build your dream home.
Give us a call or get in touch to learn more about our construction loans and how we can help you build your Australian dream home
