Common questions for those thinking of construction
What is a construction loan?
A construction loan is a type of loan intended for those building a property rather than purchasing a pre-existing property.
Can I use any builder for my project?
You must use a Registered Builder who is licenced and insured. Your lender will need to approve your choice of builder.
How much deposit do I need for a construction loan?
Since you are borrowing for a property that doesn’t currently exist, there is more risk for the lender. As such, lenders typically require more deposit than for a standard home loan. Amounts vary – discuss your individual circumstances with a broker.
How does a construction loan differ from a home loan?
With a regular home loan, you typically receive the whole loan amount at settlement. Construction loans are paid out at different stages to align with the progress of the building. As a guide, this would be slabs poured, frame up, brickwork complete, lock up and completion.
What is progressive drawdown?
A progressive drawdown, or progress payment, is the portion of the loan paid at each stage of construction, as outlined above.
What documents are required for a construction loan?
There are several documents and permits required before a construction loan can be approved. This varies from state to state, so it’s best to contact a broker to discuss further.
What if my building costs overrun and I need to borrow more?
Depending on the lender, you may have to source the extra funds yourself. It’s important to calculate expenses accurately before you start the project and apply for your construction loan. As soon as you anticipate exceeding approved funds, contact your broker immediately.