When is it time to apply for a loan?
You are looking to renovate an old, worn-out bungalow? Maybe you are finally building the grand home that you have been dreaming of for many years. We can help you achieve whatever goal you have. We offer construction loans (also known building loans), using registered builders. Flexible terms allow us to recognize the cashflow requirements of major projects.
Construction loans are flexible
It can be very stressful to build or fix up your suburban castle. A well-organized team and a solid project plan are essential. You may also need a project manager. A kind, patient tyrant (ie. A project manager can also be helpful.
Money is also necessary, but you don’t need it all at once. You will need a home loan that has special conditions for construction.
Construction loans allow you to draw down your loan in instalments or chunks. This facility is offered by most banks. They may also refer to them as ‘progressive drawsdowns’ or “progress payments”. Both are used, but they both mean the same thing: individual payments drawn from a pre-agreed loan amount at different stages of the project.
This loan has the obvious advantage that you only pay interest for the money you spend. Our construction loans offer interest-only repayment options to help reduce the burden during the build period.
In How construction loans work (part 2 in our series on construction loans), we’ll discuss progressive drawdowns more in detail. First, let’s talk about the most important element of any construction project. Your team.
Your construction team
Your builder, architect, and possibly a project manager will be there. There will be electricians, plumbers, and many other sub-contractors. A tight, cohesive team is essential. This requires flexibility, planning and great communication.
We view ourselves as part the team. We’ll assign a broker or banker to you if you apply for a construction loan. They will work with you to help you manage your loan, including your loan repayments and progressive drawdowns. We will be happy to assist you if your situation changes during the build.
Construction’s various stages
A typical building project involves several stages.
- Preparation – includes plans, permits, connection fees, insurance etc.
- Base – includes concrete slabs, footings and pad.
- Frame – The house frame has been approved and is now complete.
- Lock-up – All windows, doors, roofing, exterior, and insulation have been completed.
- Fixingg. All your kitchen cabinets, appliances, toilet, and bathroom are in place. All plumbing and electrical work is complete. The plastering and painting are complete.
- Completion – fences up. Site tidied. Builders receive final payment.
How can you obtain a loan for construction?
After you have chosen a registered builder we will ask for a set of documents. These documents include your council plans and permits, insurance provisions, and a copy your fixed-price contract with a Progressive Payment Schedule. The details are in our brochure, Your Guide to Building and Renovating, (PDF, 257KB).
We will approve your loan if your documentation is in order and you meet the normal lending criteria. Be aware that progressive draws have additional conditions.
Our valuation requirements
Before we can start, we will need an “as if complete” valuation. This is an estimate of the value of the land and the proposed building/renovation. This will ensure that the amount of the loan you are approved for is reasonable and that you have sufficient funds to complete the project. This protects both you and us.
We will also verify the construction cost. We will review the drawings, specifications, and signed fixed-price contracts. These documents should meet industry standards (E.g. These documents must meet industry standards (E.g. Master Builders Association, Housing Industry Association).
It is important to protect the building work and its workers. Before you can draw down, you will need the following insurances.
- Builders All Risk Insurance: Insures against the risk of damage to the building during construction.
- Domestic/Home Warranty Insurance: This insurance is required if you are using a registered builder. This covers the risk of non-completion by a builder due to death or insolvency, as well as disappearance. It also covers structural defects caused by builder negligence.
- Public Liability Insurance: Covers personal and property damage.
Right. You are ready to build! Well, almost. You have other things to do before you can apply for a loan. Before we will consider a loan, for example, you must have your building plans approved and a relevant building permit issued.