You’ve decided to take a leap and plan to build a new home. The next step is how do you get the money for such a project?
One thing that you can consider is applying for a construction loan.
Construction loans are different from personal loans, which might be secured by a residence, car, or some other collateral in case you default on your payments. Construction loans are unsecured, which means that you’ve got to prove that you’ll afford to pay for the loan back without being able to pawn your residence. It lets you build right away rather than waiting for a loan to be approved.
Like all loans, you should go through the whole process of research, analysis, and comparison to find the very best construction loan you are able to afford.
A construction loan is a type of financing that helps you construct a new property, rather than purchase an existing one. They’re specifically for those who don’t have any equity in the home they’re planning on building.
For example, you may need to construct a standalone structure. Or perhaps you’re in need of a granny flat. What exactly you’re building will determine what kind of construction loan you’ll need to apply for.
If you’re planning to construct a home from the ground up, the lender will provide you with an amount of money that is based on the estimated cost of the construction project. Instead of paying for a lump sum, the lender will provide you with “instalments” known as ‘progress payments’ as your home is being built.
A construction loan will be given to you as a line of credit that can be accessed as you go through the construction process. It will be provided to you as an invoice. Once the loan has been processed, the lender will pay the contractor on your behalf. You will then repay the loan over a period of time, and this will be determined by how much the lender will lend you.
As for the interest, if you’ve only withdrawn $100,000 from a $300,000 loan, then the interest will only be applied from the total amount you withdrew within a period.
When your construction project is completed and the last progress payment has already been given, the interest from only repayments will be switched to principal and interest repayments. The contract loan term will then begin moving forward.
This type of loan is not a mortgage. The home that you’re building will not be collateral for the loan. However, there may be some type of lien placed on the property.
To apply for a construction loan, you will need to find a reputable lender that provides construction financing. You will then have to fill out an application with the lender.
Along with that, you’ll need to hang on to your certificate of title and your building plans that have been approved by the council. You’ll also need to give the lender an estimated amount of money for the construction project, as well as a detailed plan for the property.
Just like when you apply for a mortgage, the lender will go through the nitty-gritty of checking your finances to ensure that you have enough money to pay off the loan. These also include the credit history, expenses, debts, and income. It will also require you to have a paid-up policy on your existing home, as well as adequate coverage for the new construction site.
The value of your property and land will be estimated by a property appraiser so that the lender can determine how much loan to lend you. This also includes the future valuations that can take place in your property.
If you want to build your own home yourself, you need to secure the following documents:
If you choose a registered professional builder, you need to provide the following documents:
A construction loan can be a great way to build a new home from the ground up. It allows you to avoid delays and get your new home built quickly. It also means you’re able to get a property that is tailored specifically to your needs. If you’re planning on building your own home, you should definitely then make sure that you carefully read through this guide so that you stay on top of everything you need to do.
If you are planning to build a property and need a construction loan, then find a lender that is right for you. Shore Financial offers construction loans for those who have a building project, as well as for other endeavours. Let us take the stress out of finding the right loan fit for your construction needs. Ring us to see what we can do for you!
We appreciate your message and a Shore Financial Adviser will respond to you within a few short days. In the meantime, here’s a few links to keep you occupied.
We appreciate your message and a Shore Financial broker will respond to you within a few short days. In the meantime, here’s a few links to keep you occupied.
