If you are thinking of building your dream home, then a construction loan is the means to finance your dream.
Construction loans are a little different to a normal home loan as there are additional decisions to be made and documentation that is required.
Construction loans are a little different to a normal home loan as there are additional decisions to be made and documentation that is required.
Documentation
Like a standard home loan, documentation is required to verify your finances, income and identity. In addition to this, your application for a construction loan needs to include contracts or tenders for the construction, as well as the plans so that a valuation can be performed.
Further documentation will also be required before the first payment is made from the lender to the builder. Documents will including a schedule of the payments to be made (called drawdowns), the builders’ insurance details and the final plans that have been approved by the local council.
Further documentation will also be required before the first payment is made from the lender to the builder. Documents will including a schedule of the payments to be made (called drawdowns), the builders’ insurance details and the final plans that have been approved by the local council.
Loan Structure
Having a split structure loan will help to reduce the interest that you may pay. Spliting your mortgage into a land only loan and a construction loan will help you to avoid having to contribute your full deposit and being charged interest on the entire loan amount from the moment the land purchase settles. At settlement of the land purchase, you start being charged interest and making repayments on the balance of the land loan only. The interest and repayments on the construction portion then kick in only as each drawdown is processed.
Funding
Construction loans are payed using a drawdown schedule. The drawdown schedule is generally paid at progressive stages of construction completion such as when the slab is poured, the frame and trusses are erected, at lock up and completion. In terms of paying interest on your loan, you don’t start paying interest on each portion of the loan until it is paid to the builder.
For the lender to make each payment to the builder, you will need to fill out a drawdown request form from your lender and submit it to your builder. The builder can then send the lender your form with an invoice for that part of the payment and, after the lender is satisfied that the work has been completed and is up to the standard expected in the valuation, the drawdown can be completed with a payment to the builder.
It is important that are happy with your plans and contract prior to obtaining finance as any changes to the contract and plans can trigger a reassessment of the loan. With this in mind, it may be worth trying to pay for any small amendments from your own pocket, rather than changing the loan and risking a reassessment.Building your dream home can be a complex process that involves multiple parties. Getting your construction loan approved doesn’t have to be as complex if you work with a mortgage broker. Talk to us today for more information.
For the lender to make each payment to the builder, you will need to fill out a drawdown request form from your lender and submit it to your builder. The builder can then send the lender your form with an invoice for that part of the payment and, after the lender is satisfied that the work has been completed and is up to the standard expected in the valuation, the drawdown can be completed with a payment to the builder.
It is important that are happy with your plans and contract prior to obtaining finance as any changes to the contract and plans can trigger a reassessment of the loan. With this in mind, it may be worth trying to pay for any small amendments from your own pocket, rather than changing the loan and risking a reassessment.Building your dream home can be a complex process that involves multiple parties. Getting your construction loan approved doesn’t have to be as complex if you work with a mortgage broker. Talk to us today for more information.