Construction loans

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A Construction Loan is a loan that is “drawn down” or accessed in stages as your property is being built, this means that your monthly mortgage repayments slowly increase as the construction reaches set milestones known as stages. Once the construction reaches completion the loan repayment reaches its full monthly repayment amount. Many Lenders also offer interest only repayments during the construction process which revert to principle and interest repayments once the construction is complete. Our experienced brokers have access to over 60 lenders and can help you navigate your construction loan process. Speak to them today!

To qualify for a Construction Loan you will need to have council approved plans and a fixed price tender from a registered builder. You should also note that you will need to use your saved funds or equity before drawing down on your Construction Loan. For many building contracts a progress inspection at every mortgage loan drawdown is arranged by the Lender. Always check with your Lending Manager if you would like to make any variations to your building contract, prior to proceeding. Upon completion of your property, the Construction Loan usually reverts to a standard variable rate.

Finding a reputable builder is the first thing to do before entering a building contract. Make sure to get confirm they are fully licenced to build and get a few references from owners of completed builds. As the contract is a legally binding document, ensure you read the fine print! It is your responsibility to go through the terms and conditions with your legal representative. Never sign anything unless you are 100% certain you understand what it means. Ask questions of your builder such as do you have all the necessary insurance policies in place? Whilst the Lenders do not need to sight the following documents, it is strongly recommended that you obtain the following documents from your chosen builder:

1. Builders License
2. Home Warranty Insurance
3. Employers Liability and Workers Compensation

In a construction loan your builder is usually paid in draw downs (also known as progress payments) which occur when each part of the work is completed. This means that your monthly mortgage slowly increases as the construction moves forward until finally at completion of construction the loan repayment reaches its full monthly repayment amount. Builders usually will send you a progress invoice when a progress payment is due. Some building contracts may require a progress inspection at every mortgage drawdown which is arranged by the Lender. Your Lender may also require you to sign a progress payment form that they will provide you which you would need to send back to them along with the progress invoice. Once the progress payment is approved by the Lender, the builder will be paid from your loan account.

Many construction loans have approximately five drawdowns. These drawdowns are often at the following
stages however may vary depending on your building contract:

• Slab completion
• Frame completion
• Outer brick work completion
• Lock up stage
• Workable completion

If you are constructing your first home, there are several government incentives and benefits available to you. Check out www.firsthome.gov.au

There are some construction loans that may allow you to borrow up to 95% of the value of the property
plus some funds to cover the cost of Lenders Mortgage Insurance which is required in cases where the loan to value ratio is greater than 80%.

Other than loan approval documents, the following items need to be provided prior to commencing construction:

• Signed Contract (fully signed by builder and purchaser)
• Signed Specifications (fully signed by builder and purchaser)
• Builders Public Liability Insurance
• Building Services Authority Insurance (QLD only)
• Arrange insurance covering full replacement value with your Lender is listed as mortgagee

A loan draw-down will often require a surveyor to confirm and approve the completion of a building stage. This approval must be provided to the bank in order to gain access to the funds. In some cases, a bank will perform their own inspections prior to releasing funds.

You will need to obtain an Occupation Certificate, also known as an Occupation Permit, from your local council.

Rather than taking a one-size-fits-all approach, we believe that every customer is unique. With a wide range of loans across over 60 lenders, there are thousands of combinations that vary based on your personal circumstances. Our team of Mortgage Brokers are fully qualified and equipped to walk you through the lending process, adding real value to your loan selection and application process and helping you every step of the way. View our lending panel here

Master Builders Association – www.masterbuilders.com.au
Victorian Building Authority – www.vba.vic.gov.au
Queensland Building & Construction Commission – www.qbcc.qld.gov.au
Office of Fair Trading – www.fairtrading.nsw.gov.au

Before making a decision on whether this type of loan is suitable for you, it is important for you to consider the above information and discuss the suitability of this loan type with your Mortgage Broker.

This is general information only and is subject to change at any time. Your complete financial situation will need to be assessed before acceptance of any proposal or product.

With our process, in most circumstances your entire application can be signed digitally with software such as Docusign, however there are some forms with specific lenders that will need to be signed by hand.