When should you apply for a construction loan
Are you renovating an old, tired bungalow? Perhaps you are finally building the home you have always wanted. No matter what you are working towards, we can assist. We offer construction loans (also known to as building loans) through registered builders. Our flexible terms are designed to meet the cashflow needs of major projects.
Construction loans offer flexibility
Renovating or building a suburban castle can be stressful. It is important to have a clear project plan that allows for contingencies, but also supports a well-organized team. It is also possible to have a project manager. A friendly tyrant with the stick (ie. A project manager (ie.
You will also require money. However, you won’t want to pay it all upfront. A home loan with specific construction conditions is what you will need.
You can take out construction loans in either instalments or chunks. Many banks offer this option and may call these instalments ‘progressive drawings’ or ‘progress payment’. They can be used interchangeably, but both are the same: individual payments that are drawn at various stages of a project from a pre-agreed loan sum.
You only pay interest on what you use. This is an obvious benefit of a loan. You can also borrow interest-only during construction to reduce your burden.
The second part of our series, How construction loans works (part two), will discuss progressive drawdowns. Let’s start with the most critical element of any construction project. Your team.
Your construction team
You will have your architect and builder. Maybe even a project manager. Additionally, you will need electricians, plumbers and other sub-contractors. It is important to have a cohesive, well-organized team. This requires planning, flexibility, and above all, great communication.
We consider ourselves to be part of the team. If you are approved for a loan to construct a home, we will assign a banker or broker to you. You’ll be able to discuss all aspects of your loan with them, including the progressive drawdowns as well as your loan repayments. You can contact us immediately if you have any questions or concerns during the build.
The typical stages of construction
A typical building project includes several stages.
- Preparation – includes plans, permits, connection fees, insurance etc.
- Basis – includes concrete slabs footings pad and base brickwork.
- Frame Your house frame is approved and complete.
- Lock up – all windows, doors and roofing are done.
- Fixingg. Your kitchen cupboards, appliances and toilet are all in. The plumbing and electrics are complete. Your home is plastered and painted.
- Completion – fences up. Site tidied. Builders receive their final payment.
How do you get construction loans?
Once you have selected a registered builder, you will need to provide a series of documents. These documents will include council plans and permits as well as your insurance provisions. We also need a copy or your fixed-price agreement, including a Progressive Payment Schedule. You can find the complete details in our brochure, Your Guide to Building and Renovating. (PDF, 257KB).
If all documentation is in order, and you meet normal lending criteria, we will approve your loan. Keep in mind, however, that every progressive drawdown comes with additional conditions.
Our valuation requirements
Before you can begin, we need an ‘as-if complete’ valuation. This is an estimation of the market value for the land and building/renovation. This helps ensure the loan amount is realistic and you have enough money to do the job. This protects both of us.
We’ll also review the cost estimate for construction. We will examine the plans, specifications, and a signed fixed price contract. These documents must be in compliance with industry standards (E.g. Master Builders Association and Housing Industry Association must approve these documents.
Protect the building work and its employees. Before you can take out any drawdowns, you’ll need to have the following insurances.
- Builder’s Insurance: This insurance covers the construction-related risks.
- Home Warranty Insurance: If you use a registered builder, this insurance will be necessary. It protects against the possibility of the builder’s death, insolvency, or disappearance. Also, it covers structural defects due the builder’s negligence.
- Public Liability Insurance – Covers individuals and property damages.
Right. You’re all set to build. Well, almost. There are other tasks you need to complete first. To be eligible for a loan, we need to approve your building plans and issue a relevant building permit.