What is a construction loan?
A construction loan is a specialised loan designed to finance the building of a new property. Here’s how it works:
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Secured by Property: The loan is secured by the property being constructed and is typically disbursed in stages corresponding to the completion of different phases of the construction project.
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Application Requirements: When you apply for a construction loan, you’ll need to provide a copy of the building contract or tender, council approved construction plans, any additional quotes for extras such as landscaping and secure the land with a contract of sale if not already owned.
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Valuation Process: The lender will appoint a valuer to estimate the property’s value upon completion. Your loan will be based on the lesser amount between the land price plus construction costs or the estimated on-completion value. (Not all construction add on’s will add property value!)
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Loan Approval: Once approved, the lender will issue a loan offer for you to sign and return, similar to other home loans.
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Builder’s Documentation: Before your builder can start receiving payments from the bank, they must submit additional documents such as insurance details, and stage invoices inline with the agreed drawdown schedule.
