This can be a good safeguard for you as a homeowner, because it can reduce the likelihood of defects.Īfter all, the builder only gets paid if the assessor believes they’ve performed work up to the right standards. Usually, they’ll send their own assessor to the site, to check progress and assess the work. The amount you need to pay as a deposit will depend on the amount you’re borrowing, as well as the lender’s own LVR requirements and their valuation of your home.įinally, because your finance is paid in stages according to the build progress, the bank will need evidence that each building phase is complete before they’ll release funds. To increase your chances of getting approved, you should make sure you don’t have too much debt and that you have a history of paying your bills on time.Īs new builds can end up costing more than you initially thought, due to extras such as landscaping or laying a driveway, the lender may even recommend that you apply for a bigger loan than you’d originally anticipated. They’ll also carry out their own credit checks. When a lender assesses your application, they’ll weigh up your income and expenses, and look at your existing assets as well as your access to credit. They’ll decide what they believe your home will be worth, and use this figure for assessing your application.Īs with any home loan, you need to get formally approved before you can get access to any money. The bank will usually arrange for a professional valuer to go over both your plans and the building contract. After all, this is essential information for calculating the loan-to-value ratio (LVR) and working out the level of risk involved in lending to you. They’ll also want to see any other permissions required, and your builder’s proof of registration and insurance.īefore a lender gives you a construction loan they’ll want to know what your home is likely to be worth when it’s complete. You could also look to obtain an approval in principle but note that any formal approval will require a finalised contract.Īny lender considering your construction loan application will want to see council- approved plans of what you intend to build. Just be careful that you don’t sign a building contract committing you to the build even if you don’t get approved for finance. This means you need to have your builder sorted before you approach them. Most banks won’t even consider giving you a construction loan unless you have signed a fixed price building contract. How to apply for a construction home loanĪpplying for a construction loan works a bit differently to taking out other home loans. If you need to borrow money to buy land as well as build a house, you may also have to take out another type of loan, known as a land loan. You may be able to get around this by taking out lenders mortgage insurance (LMI) or using a guarantor. Because building a home can be riskier than buying an established home, some lenders will expect at least a 20% deposit. You’ll usually need a deposit for a construction loan, just as you would for other mortgages. After that, you normally begin making principal and interest repayments. Generally, construction loans are interest-only loans for the first 12 months or until you draw down the entire amount, whichever comes first. This feature, known as a progressive drawdown, means you only begin paying interest on amounts you’ve actually used. Payment milestones typically include:Ī construction loan works by letting you access money in chunks that correspond with each of these key steps. Instead, the builder gets paid as they reach certain milestones in the build. When you build a new home, you don’t usually pay for it all in one hit. We explore how it works, what features it has and how you can apply for one if you’re considering building your own home.Ī construction loan is different from most other home loans due to the way it is funded. A construction home loan is a type of mortgage specifically designed to let you build a new home.
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