So you are building a new home and you need a Construction Home Loan. Where do you start? Your mortgage broker What If We Finance can help. As the leading independent mortgage broker, we have extensive experience with construction finance.
It is important to note not all lenders lend for construction and have different fees and charges.
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, income and also asset and liability position. The principal difference when building a home is the way the home loan behaves.
When building a 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
- Lock up
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. For example, at the end of the construction period your loan can be fixed, variable or split.
At 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 fixed price building contract. The bank will then make the progress payment.
Normally there may be a charge for each progress payment and your independent mortgage broker can explain this further.
For construction home loans the lender will want to see the following information:
- Contract to buy the land
- A fixed price building contract. It is extremely hard to obtain. Finance as an owner-builder
- Council approved plans
- Builder’s 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 purchased for $200,000 and construction costs are $200,000 the bank may value the project at $400,000. But if the market value of the finished product is less than $400,000 the bank will value the project at a lower amount.
Banks will lend up to 90 to 95% of the bank assessed value of the project for owner-occupied construction.
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.