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Construction loans are for applicants interested in building a new dwelling. They are usually in the form of a land loan combined with a construction loan allowing an applicant to purchase land upfront and then make progressive draw downs to the builder as the construction progresses.
Applicants purchasing land and arranging a builder to design and build a home or applicants purchasing a house and land package will usually require such loans.
Applicants looking to build a new home and who are first home buyers may also qualify for government first home buyer benefits, so construction loans are popular with first home buyers for this reason.
Construction loans can be structured in different ways. The loan may be able to be structured all in one split which may save a little on some costs however a fixed price building contract is usually required upfront to be able to go down this route. Alternately the loan can be arranged as a separate land loan and construction loan allowing an applicant to settle upfront on the land and later arrange the requirements for the build. Requirements to get an approval for the construction component include full build plans, lists of inclusions, and a detailed build tender or a fixed price building contract including progress payment schedule.
Further requirements are needed prior to commencement of construction including council approved plans, construction certificate, and builder’s insurances.
The build process is relatively drawn out and can be quite complicated especially for applicants who are new to the property market. Home Loan Advice Centre brokers have personal experience with home construction including the build tender processes, the development application process, and the various pitfalls of applying for construction loans. We are able to help and guide applicants through this process to make a complicated procedure as manageable as possible.
Construction Loan Documentation
Construction loans are more “documentation heavy” than standard loans and different documentation will be required at different points in the application process.
The documentation requirements for a land loan are similar to a standard home loan. Applicants need to provide standard income, asset, liability, application form documentation and additionally will need to provide a contract of sale for the land when unconditional approval is required.
An approval in principle for a construction loan will usually require
- An estimate of build cost for the dwelling that is being proposed.
An unconditional approval for a construction loan will require
- Full architectural plans of the proposed dwelling.
- Fully signed fixed price building contract (some lenders may accept a signed detailed build quotein lieu of a fixed price building contract if the final build contract is not yet available) including progress payment schedule.
- Full list of building inclusions.
A builder letter of commencement will usually require
- Fully stamped council approved plans
- Council construction certificate
- Full builder insurances including home warranty insurance and public liability insurance.
Progress payments will require a builder’s invoice signed and authorise by the applicants at the various progress payment stages.
Valuations will likely be required at various points within the process dependent on the lender.