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What Are Construction Loans?

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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:

Getting approved for construction loans is a different process than applying for standard home loans. In addition to having to give details of your income and expenses, you’ll have to provide the lending institution with:
  • self-employed individuals;
  • freelancers;
  • Contracting workers;
  • professional investors; and
  • small business owners.
It’s worth noting, however, that lenders mortgage insurance applies for any deposit under 20%.

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?

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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.

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We Compare The Market

We compare loans from various lenders to ensure you are getting the best deal.

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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!

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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.

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Speak To a Construction Loan Expert Today!

At finance hub and networks, our Construction Loan specialists will do all the work for you: research, advise and assist in helping you make the best decision for your circumstances.
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info@finhub.net.au

Address

GPO BOX 359 SYDNEY NSW 2001

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Applying for a home loan can often be overwhelming – especially if you’ve never gone through it before. Having finance hub and networks on your side can help make the home loan process a whole lot easier.

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