Construction Loans

Construction finance to build your dream home

When it comes time to build your dream home, there are a few things that you need to know about before you start.  Obviously you need a team of experts to help build a home.  A designer, a planner, a builder, and a landscaper, just to name a few!  But how do you go about paying for the team?  If you have the cash to get started, then that is the best way to go.  But be aware that you will need to make advance payments before the earthworks get started. So construction finance will probably be very close to the top of the list of requirements.

Get your Bank to approve your building home loan before you commence any work on the property. Yes – you can get the Soil tested. But the bank will want a valuation of the natural land with no improvements (sheds excepted).  They will want to see this valuation along with your proposed Building Contract, Plans & specifications prior to approving your Construction loan. The banks will require you to use only your funds first, before they will commence draw down payments to the Builder.

construction finance

Looking for construction finance, Brisbane home builders?

The major consideration when building your dream home is that you’ll need to obtain a loan for construction finance to get started.  But there is no such thing as a home loan when there is no home!  So this is where a construction loan is the way to go.  And it pays to have an expert help you through the process.  Wendy de Graaf has helped many people to get construction finance to build their dream home, so she really understands your needs.

How to get a construction loan

A Construction Loan requires a specialist finance broker, and this is where Wendy de Graaf can help.  Wendy understands the construction finance system, and knows how to get the approval to start building your dream home.  She can assist with all stages of the process of applying for a construction loan in Brisbane or elsewhere across Australia.  From the application process, to liaising with builders, to making part payments.  The important thing to understand about a construction loan is that the loan amount is necessary for the completed project.  It is vitally important that you don’t run out of construction finance before the project reaches completion.

With any variations to your home construction, you will need to contribute the difference.  This is because the Construction loan is based on the original Approved Building Contract, Plans & Schedules.

Part Payments

Generally speaking, the building contract will require several part payments which progress as the project nears completion. For example, the designers and planners do all their work before the construction begins.  The building materials have to be ordered, prepared and delivered to the site.  And the builder has to commit resources, planning and preparation before getting started on site.  Each of these phases of the project will require payments to be made from the construction loan.  It is important that the team stay on budget and on schedule.

What are the steps in obtaining construction finance?

Most building contracts require payments:

  • after pouring of the slab,
  • building up the framework and roof of the house,
  • reaching so called lock up stage, and finally
  • what is known as practical completion.

Each of the banks has different criteria on Progress Payments Schedules.  The most common is as follows:-

  • 5% Deposit “of the total Build Cost”
  • 15% Base “of the total Build Cost”
  • 20% Frame “of the total Build Cost”
  • 20% Enclosed “of the total Build Cost”
  • 25% Fixing “of the total Build Cost”
  • 15% Practical Completion “of the total Build Cost”

After the satisfactory completion of each of these stages of the construction, payment will be required to the builder.  So this is drawn down from the construction loan.

How to save money with a construction loan

There are both advantages and disadvantages to using a construction loan.  Firstly, the risk is that the budget will go over, and that the amount of funds approved under the construction loan will not be adequate.  The only way to manage this risk is to closely monitor the planning and building process to ensure that the budget is on track.

It is best to ensure all variations colours and tiles etc are selected prior to the final Contract is provided to the Lender.  If you wish to make any changes thereafter, then you will have to pay the difference.  This is to avoid any over the budget issues.

However, the good thing about a construction loan is that you only pay interest on the amount borrowed.  Because you only need to borrow for the construction loan in part payments, you don’t have to pay the full interest in the beginning. Because you only pay the interest of the drawn down amount of the loan at each interval.  As each schedule payment to the builder has been processed by the Bank, the interest is calculated on the balance of the funds drawn down.

Managing the process closely can be helpful to manage the amount of repayments due against the construction loan.

Wendy will manage this process on your behalf and advise you of any discrepancies, if any.  And Wendy will work with you, the builder and the Bank to rectify any discrepancies.  You won’t be on your own!

Tips for getting a construction loan for your new home

The biggest tip is to use a friendly and trustworthy mortgage broker like Wendy de Graaf!  Wendy has many years of experience in applying for construction finance.  She can provide all the support and assistance you need to guide you through the application process.  It pays to get good advice.  There are often many hurdles along the way when it comes to construction finance.  Such as making sure that the building inspections meet all requirements before making payments.   Wendy liaises with the bank to validate that each inspection passes the bank’s requirements and the building codes.

Building your own home is much easier today than it has been in the past.  With all the regulations and inspections available, and enforced, you have every opportunity and tool available to ensure your home is completed to your standard.

Call Wendy today and get started building your dream home!