The Basics Of Construction Loans Part Two
We recently spoke about the ways in which construction loans differ to established home mortgages, and now we’d like to delve a bit deeper into the subject matter.
When you purchase land for construction, developers and builders may insert a finance clause in the contract they prepare for you, depending on your location within Australia and to serve a number of useful purposes.
First, it takes your land or new home off the market - most applicable to house and land packages or development projects where there are a lot of blocks for sale.
Second, it gives you time to secure formal finance approval - a process that would be faster if you have already secured formal pre-approval.
Third, if your lender denies your application suddenly without warning, the financial clause allows you to walk away from the contract legitimately and without adverse consequences.
The construction process usually sees five building stages, with payment on each stage due after the builder completes it. Therefore the bank will draw down your loan in five phases.
These may follow the standard format of base, frame, lock up, fixing and practical completion, but will often differ between construction projects, particularly if the building work is unusual.
To get more detailed information on your situation, talk to a Loan Market mortgage broker today.