Construction Loans

Financing the construction of a new home is very different from financing an existing property.  

If you are buying land and then want to build your new dream home on the block, you will require a tailored construction loan.

BuildingWA.com.au spoke exclusively to Wayne Chamberlain, Director of Resolve Financial Solutions about Construction Loans.  He said "Construction loans help you purchase land, build a residential property on land already held and/or complete the land purchase and construction. A construction loan allows you to make minimum repayments until construction is complete."

A variable loan is used to pay the builder in stages. During construction, loan repayments are interest only payable on the amount of the loan drawn down.

The lender uses a valuer to assess the land and proposed construction. Progress payments are only made when the builder has reached certain stages of construction. Paying the builder in stages ensures the builder isn't getting paid for work that has not yet been completed. 

Common progress payments include slab down, frame up, external brick work completed, lock up and final completion.

Wayne notes that "Most lenders will have a maximum construction period of 12 months. After this time, the loan reverts back to a standard variable or fixed rate loan and you will be paying off the principal and interest of the duration of the loan."

Wayne also recommends working with a mortgage broker that is experienced in construction financing.  "Do your research!  Making sure your mortgage broker is aware of the specific requirements of a construction loan will save you costly regrets in the future."