Construction loans are the loan to apply for when building a new home or embarking on significant structural changes on a pre-existing home. To apply for one, you’ll need to show the lender the council approved building plans and fixed price building contract.
If you’re successful in getting a construction loan, you’ll receive payments throughout the building process as opposed to a lump sum at the start. This gradual payment arrangement is referred to as a ‘drawdown’. There are generally around five stages in which the payments will be received: slabs being poured, frame going up, brickwork being completed, lock up, and finally practical completion.
A valuer may also visit during the process. They will have been sent by the lender to ensure that everything is running to plan. Based on the valuer’s report, the lender will either continue the payments or alert you of a problem.
While this payment arrangement can seem cumbersome, it means you’ll be paying your builder and other contractors only as they complete the work. This can be beneficial should any issues arise. Another benefit of the spaced-out payments is that interest will only be charged on the amount drawn down, not the total.
Any questions on applying for a construction loan to build or renovate, please give us an obligation free call.