Construction loan
When to apply for a construction loan:
Renovating that tired, beaten-up old bungalow? Or maybe you’re finally building that grand home you’ve been designing in your head for years, or taking the plunge into property investment? We offer construction home loans (also known as building loans) using registered builders, with flexible conditions that recognise the cashflow challenges of a major project.
How do you get a construction loan?
Once you’ve chosen a registered builder, we’ll ask you for a suite of documents.
This includes council plans and permits, your insurance provisions and a copy of your fixed-price contract including a Progressive Payment Schedule.
Valuation requirements:
Before you start, we’ll need an ‘as if complete’ valuation – an estimate of the market value of the land and proposed building/renovation. This ensures the amount of the loan is realistic – and that you have enough to get the job done.
We’ll also check the quoted cost of construction. We’ll look at the plans, specifications and a signed fixed-price contract. These documents must meet industry standards.
Insurance:
The building work – and its workers – must be safeguarded. You’ll need to take out the following insurances before you can make any drawdowns.
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Builder’s All Risk Insurance: Covers risk to the building during construction.
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Domestic/Home Warranty insurance: You’ll need this if you’re using a registered builder. It covers risks such as non-completion by the builder due to death, insolvency or disappearance. Also covers structural defects due to builder negligence.
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Public Liability Insurance: Covers risks such as damage to property and injury to individuals.
Cost overruns:
Cost overruns are when the building expenses exceed the planned progressive payments we agreed to at the start of your loan. We understand this sometimes happens. You might change your cladding from timber to brick. You might opt for wooden joinery instead of aluminium. Or you might simply decide you want double power points instead of single ones.
If you exceed the amount we agreed upon, talk to us ASAP about next steps. If we can’t provide additional funding, you’ll need to cover the extra cost yourself.
A typical house construction scenario has five stages:
01.
Laying the slab
02.
Roofing and tiling
03.
The internals
04.
Lock-up
05.
The final payment
What is progressive drawdown?
Construction loans let you draw down your loan in chunks or instalments. Most lenders offer this facility and may refer to these instalments as ‘progressive drawdowns’ or ‘progress payments’. They mean the same thing – individual payments, drawn at various stages of the project, from a pre-agreed loan amount.
The obvious advantage of this loan is that you only pay interest on the money you use. To further lighten the load, our construction loans have interest-only repayment options during the build period.
Final Payment
Before your final progressive payment can be made, after the building has been completed, you will need to provide us with the following documents:
• For new homes: a copy of the occupancy certificate or interim occupancy certificate where only external items such as driveway and landscaping (not included in construction valuation) are outstanding.
• For renovations and extensions: a copy of the final inspection certificate.
• A copy of the building insurance/fire policy may also be requested.
The certificates referred to may differ for each state or territory.
Paying interest-only on your loan
Conversion to principal & interest
Our construction loans are designed to ensure you don’t draw more than you need – or exceed the construction costs you’ve budgeted for.
That’s why our loans begin with an interest-only period. This means you’ll be paying interest-only – and only on the amount you’ve drawn down.
Your construction team
You’ll have your builder and architect, maybe even a project manager. You’ll also have plumbers, electricians and a horde of sub-contractors. You need a tight, cohesive team – and this requires planning, flexibility and (above all) great communication.
When your interest only period finishes your loan will convert to principal & interest. You will be advised in writing of what your new repayments will be. If you finish building before the end of your interest only period, you can ask us to vary this contract to bring the interest only period to an end and start your principal and interest repayments.