Construction Loans & Owner Builder Mortgages
Guide to Construction and Home Improvements Loans
If you have been searching through the properties in the price ranges and neighbourhoods you like, you may have found that every house you look at is just not quite right. You may want the ensuite from one house and the kitchen from another, you may prefer the front facade from one house but the layout from another and as a result you may be considering building a new home, with an independent builder or as an owner builder.
Fortunately, we are here to help you out with figuring out how you can get a good home loan set up. This can help you out with things like the construction and preparation parts of getting your home ready for you to live in.
You should especially be aware of how the process is handled. This is all because of how some plans for getting like these ready can be poorly drafted by some loan providers around the country. We want to ensure that you can get any problems that could come up fixed or avoided altogether. This is so you can actually get your loans handled and your home ready for you to build and live in down the road.
Featured Construction Loans
| Home Loan | Details | Interest Rate (p.a.) | Comp Rate^ (p.a.) | App Fee / Ongoing Fee | Max LVR | Min & Max Borrowing | |
|---|---|---|---|---|---|---|---|
 State Custodians Mortgage Company Construction Loan |
A flexible loan with a competitive rate from a leading non-bank lender. | 6.56% | 6.52% | $0 / $0 | 90% | $100,000 / $1,000,000 |
 
|
 HomeStar Advantage Construction Loan |
Up to 90% LVR and one of the lowest rates on the current market | 6.53% | 6.54% | $0 / $0 | 95% | $150,000 / $2,000,000 |
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If you are looking to build your new home rather than buy an existing property, you need a different type of home loan known as a construction loan. A construction loan can also suit you if you are making major renovations to your existing home or to a property you have bought but which needs a bit, or a lot, of work before you call it home.
How Does A Construction Loan Work?
A construction loan can give you the flexibility and the affordability you need during the building process so you can keep an eye on your tradesmen and not have to worry about your loan. Common features of a construction loan include:
- Available for building or renovating your home. A construction loan is a separate type of loan you will need to apply for if you are considering entering the building process. While a construction loan will revert to a standard loan at the end of the building process, not all lenders will offer a construction loan option, and construction loan style repayments cannot be made from every type of loan. You may need to provide a fixed-price building contract to your lender, or show council approved plans to have your loan amount approved for construction.
- You pay interest only during construction. You also only pay interest on the amount of your construction loan you have used to date so while you are probably still paying rent if you are building a new home, or you are trying to save to be able to afford to furnish your new extension, paying only the interest during the construction period can help you manage your finances.
- You draw down on the loan when you need it. A construction loan is typically divided into five stages: the land; the slab; the frame and roof; lock up; and completion. At the completion of each stage you draw down on your construction loan to pay the builder or contractors at that time. This can help you stay on budget as you don’t have to manage the whole amount at once, plus you are only paying interest on the amount you have used for stock
- The security to verify your builder’s work. If you are having your home built via project builder for example you don’t have to pay the builder until they have finished each stage. You also get to assess each stage of the building process before you decide to authorise payment from your loan to your builder. This means your builder doesn’t get paid for the work they have done until you are happy with it.
- A valuer may also assess the building work. A valuer from your lender may also visit your building site to make sure each stage is completed according to your building contract before authorising payment.
- A construction loan allows for a building period of two years. Typically most construction loans allow up to 2 years for your home to be built or renovated up to the final stage in the final loan drawdown. Once the final payment has been made to your builder, your construction loan should automatically become a standard home loan and your repayments will become both principal and interest payments.
- Look for all the loan features you want. Refinancing a loan can be an expensive process so you don’t want to choose a construction loan which is right for you during the building process, but which doesn’t fit your needs properly once your home is finished. Instead look for features you want and need, such as free additional repayments so that during your interest only repayments period for example you can deposit more into your loan to get ahead before you have even moved in.
eChoice Construction Loan Comparison Service
Visit the eChoice website to speak to an expert mortgage broker broker about the various construction loans currently available to Australian borrowers.
- Interest Rate of 6.95%
- Comparison Rate of 6.95%
- Application Fee of $0
- Maximum LVR With LMI: 90%
- Minimum Borrowing: $0
- Maximum Borrowing: $0
How To Get Construction Handled
A point about a construction loan to review involves the construction process itself. A lender that you want to get a loan off of will need to ask for a copy of the contract that will be used for building your property. An estimate of the value of the property after it is completed should be determined. A loan value will be created at this point. This value will be based on the price of land and the cost of construction or on the completed value of your property.
The lender can then get a home loan set up for you. The builder will need to send in insurance and council approved plan papers to the lender before it can be paid. You can get your bank to pay your builder with a simple process.
- Get an invoice from your builder.
- Get a draw-down request form from your lender and sign it.
- Send the draw-down request form and its invoice to the lender’s construction department.
- Get a valuation on your property. This is required by most lenders as a means of ensuring that the building is being constructed.
- The money will be sent to the builder in five business days.
- Repeat for all payments to your builder. This will have to go on for as long as needed in order to get your loan paid off over time and without too many delays in the process.
What If A Building Contract Changes?
There are some cases where a lender will make a construction loan more expensive. This is due to how the contract price might go up after you get an amendment on your home prepared. This can especially be difficult because the builder will end up having to reassess the value of the loan from the top. However, you can do a few things in order to keep this from being a problem down the road.
- Get your building contract to be complete and finalised before sending it to your lender.
- Pay for any new changes to your construction with your own money. You could also ask your builder to reimburse you in the even that you got any discounts out of something.
- Consult your lender if the changes are massive. You might need to wait a month for the lender to review the loan again.
- Be sure to simplify your changes. This is so it will be easier for the bank to make changes and to keep from being delayed in the process.
Other Points To Review
There are several parts of a home loan that you should be taking a look at. You should first think about the other expenses that will go alongside the construction of your property. These include expenses for landscaping among other things. You should review these expenses with your builder and your bank before a loan is created. This is so you will be fully prepared for all of the expenses that come with your loan.
Also, you should think about whether or not you are going to buy the land that your property is on. You might want to get one loan for your construction needs and another for your land needs in this case. You will need to do this in order to avoid dealing with an LMI charge upon settlement.
What About Your Deposit?
You will need to be careful with your deposit. This means that you should continue to save your money while your home is being built. This is so you can ensure that you will have a deposit to work with later on. Your lender will not be able to release any funds that do not relate to construction draw downs.
It will be important to take a look at the value of your loan and to ensure that it is a little higher than what you expect your construction costs to be. This is so you can guarantee that you will have enough funds on hand for your deposit. You will need to have this money if you are going to be able to get the entire construction process complete so you can actually live in your property.
What About Cash?
You could choose to pay cash for your mortgage. However, doing so will cause you to keep from getting a loan. A loan that is according to the value of the property could still be used though. The best thing to do is to get a formal contract set up between you and your construction provider. We can help you to get a contract set up so this can work out right.
Support is Available
You can get your loan to be paid off with ease in some cases. The First Home Owners Grant can work. This is a grant you will get when your first draw down is sent off to the builder.
However, this grant may not help you to get the money needed to handle the mortgage purchase. It may be enough to handle the completion of your construction project though.
The best thing to do is to contact your local government for details on what you can get if you are building a home or are a first time buyer of a home. We can help you out as well by giving you calculations on the amounts of money that you would need in order to get a project completed.
We can also provide support in the event that you have a guarantor loan to go with another loan for construction purposes. This is so you can get to lenders that can accept a loan like this.
Remember, we work as helpful mortgage brokers who can help you out with all of your construction loan needs. This is so you can get a loan approved without creating too many problems in the process. Our assistance will help you to ensure that you can get a good loan ready while being able to pay it off over a reasonable period of time. Our services can be some of the most important things that you can ever use when getting a home ready to be built.
Building your own home can mean you get everything exactly the way you want it, and with a construction loan you remain in control of the building process at every stage.
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You are building your own home because you don't fit into the mould of an existing property and so you don't want to have to try and fix your loan requirements into the mould of a standard loan either that is why as an owner builder you can benefit from using a construction loan while your dream house is being built.
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