What Are Construction Loans?
What Are Construction Loans?
Construction loans are a type of home loan designed specifically to build a new home or renovate an existing home.
What Is the Difference Between Construction Loans and Traditional Home Loans?
It has a different loan structure to home loans designed for people buying an existing home. The most notable difference is that a construction loan has a progressive drawdown.
A progressive drawdown means that you receive instalments of the loan amount at various stages of construction rather than receiving it all at once at the start.
Is the Application Process Different for Construction Loans?
See how the payments are made during the various building stages:
- self-employed individuals;
- freelancers;
- Contracting workers;
- professional investors; and
- small business owners.
If your loan is approved, your lender will give you a loan offer. You will then have to make a deposit, as you would with most other types of home loans. A larger deposit can help convince your lender that you are a less risky borrower, but usually, you’ll only need to pay at least 5%.
Once construction starts, you’ll usually have to confirm that the work has been done, complete and sign a drawdown request form, and send it to your lending institution at each construction stage. It’s likely that you’ll also have to submit an invoice from your builder for the cost of the work done.
How Can A Finance Hub and Networks Mortgage Broker Help You with Construction Loans?
We Help At Every Stage
There’s a lot more admin that goes into a construction loan than a standard home loan. At Finance Hub and Networks, we can advise you on getting the right loan structure in place and can help smooth the process.
We Compare The Market
We compare loans from various lenders to ensure you are getting the best deal.
We Do All The Paperwork
With banks clamping down on applicants with stricter lending rules, you’ll want your application to be perfect. We take care of all the paperwork!
Construction Loans FAQs
How Do Interest Payments Work on Construction Loans?
Because construction loans are paid in stages or progressively drawn down, the interest is calculated based on the funds you’ve used so far.
For example, if the builder has only used $187,000 of the $400,000 loan, you would only have to pay interest on $187,000.
Can I Use a Standard Home Loan Instead of a Construction Loan?
You can only use a standard home loan instead of a construction loan for building or renovations if your traditional home loan has positive equity.
A standard home loan will have equity if your property’s value is worth more than you owe on it.
A Finance Hub and Networks mortgage broker can advise whether this would be a more suitable option for your circumstances than a construction loan.
Our Lending Partners
