Construction Home Loans explained

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Construction Home Loans explained

So you are building a new home and you need a Construction Home Loan. Where do you start?

Construction home loans are assessed on the same basis as any other home loan. The bank will look at your capacity to repay the loan and also asset and liability position. The principal difference when building a home is the wave the home loan behaves.

When building home the entire home loan is not drawn at once but the bank will pay the builder over 6 stages and these typically are:

  • Buying the land
  • Slab or foundation
  • Frame
  • Lock up
  • Fixing
  • Final

This means the bank pays each phase progressively as each pass is completed. Typically with construction home loans you only pay interest on the amount that is physically drawn down during construction until the completion of your building project. You can then nominate the type of loan the construction reverts to.

On the completion of each phase, the bank or a valuer will normally inspect the project to ensure work is complete according to the requirements set out in the fixedprice building contract.  The bank will then make the progress payment.

For construction home loans the lender will want to see the following information:

  • Contract to buy the land
  • A fixed price building contract
  • Council approved plans
  • Builders insurance and warranty information

The bank will value the property being built and typically this may be land value plus construction costs. For example if the land is purchase for $200,000 and construction costs are $200,000 the bank may value the project at $400,000. Banks will lend up to 95% of the bank assessed value of the project for owner occupied construction.

Your mortgage broker What If We Finance has considerable experience in helping borrowers with construction finance. We will work with you to ensure all bank requirements  are met and take the stress out of finance so you can enjoy your new home. Contact us today to find out more.

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