Construction Loans

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While in a standard home loan all funds are advanced at settlement, with a construction loan lender will usually retain all of the cost to construct your property (amount stated in the fixed price building contract).

Construction loan funds are progressively drawn down at each stage of construction. Each progress draw-down is referred to as a “Progress Payment”. Progress payments are made directly to the builder. If bank is only funding a portion of the cost to construct your home, you must contribute all of your own funds before you can draw down on the loan.

There is a difference between loans for buying an established property and loans for building your own home.

Bank valuation

Banks value established properties differently as compared to ‘To be built property’. Sometimes if you don’t do due diligence before you apply for the loan, the valuation may come short of the purchase price or build cost.

Progress payments

Banks pay builders in instalments called progress payments and they have rules around how these payments are made. Some charge ‘Progress payment fees’ for each payment, others may pay the builder only if it is as per a standard payment schedule.

Construction process

Various lenders release Grants, such as First Home Owners Grant at different stages of construction process. They may also organise inspections at different stages – And charge you for the inspection.