Whether you’re renovating, knocking down and rebuilding, subdividing, or completing a multiple-development project, there are specific financial products designed for your needs.
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Construction loans
Unlike regular home loans, whether you typically receive a lump sum of the loan amount at settlement, construction loans are paid via progressive drawdowns or progress payments, where a portion of your loan funds are released at each stage of construction.
Construction loans offer flexibility during the building process, ensuring you only pay interest on the funds you use as each construction stage progresses. With each drawdown, your repayments will adjust accordingly, making it easier to manage cash flow during the build (usually interest only over the first 12 months and then revert to a standard principle and interest loan thereafter).
These loans are specifically designed to support the unique needs of building, from laying the foundation to the final touches. Once construction is complete and all funds are drawn, the loan typically converts to a principal and interest structure, allowing you to gradually repay the balance.
Frequently asked questions
Below you’ll find answers to the most frequently asked construction loans questions
What is a construction loan?
A construction loan is specifically designed for building or renovating homes. Unlike a standard home loan, funds are disbursed in stages as the construction progresses, known as progress payments.
What are the eligibility requirements for a construction loan?
Applicants typically need a higher credit score, a significant down payment and a detailed construction plan approved by the lender. It’s also essential to employ a licensed builder unless the borrower qualifies as an owner-builder, which has more stringent requirements
Can I make additional payments during the construction phase?
Yes, many construction loans offer the flexibility to make additional payments. This can reduce the principal balance earlier and potentially lower the amount of interest paid over the life of the loan
How long do I have to complete the construction?
The timeline for completing construction can vary by lender but generally, construction must start within 12 months of the loan closing and be completed within 24 months. This timeframe allows for the various stages of building and potential delays.
What documents are needed to apply for a construction loan in Australia?
You’ll typically need council-approved plans, a signed fixed-price building contract, insurance provisions, and a progressive payment schedule. Requirements may vary by lender.
What is a progressive drawdown, and how does it work?
Progressive drawdowns allow you to access your loan funds in stages as your construction progresses. This means you only pay interest on the money you’ve drawn down, not on the total loan amount, helping manage cash flow during the build.
Can I get a construction loan as an owner-builder in Australia?
Yes, some lenders offer construction loans to owner-builders, but it can be more challenging. The terms, required documents, and deposit amounts may differ, and not all lenders provide this option.
What happens if my construction costs exceed the original loan amount?
If you experience cost overruns, you’ll need to consult your finance broker to discuss options. Additional funds may not always be available, so you might need to cover the extra costs yourself.
What types of insurance are required for a construction loan?
You’ll usually need Builder’s All Risk Insurance (builders warranty insurance), domestic/home warranty insurance, and public liability insurance to protect the property and workers during construction. These are essential for any drawdowns during the build.
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