Mortgages can get tricky when it comes to building a new home. Aside from risk or questions about investment, there is a lot going on, and having access to your money when you need it is important. Finding the right construction loan can be just as important for builders as it can for those constructing a dream home for their families. That is why at Mortgage House, we can help track down construction loans that can suit either registered builders or owner-builders. The main advantage of a construction mortgage is you can stagger the drawdown of your loan as your property reaches certain stages, once there is proof the agreed work has been completed. The main benefit of these loans is that money will be paid to you when needed, which means you only pay interest on the amount of money you have used. You have two years 18 months after your settlement to complete construction of your dream home. You will also have the benefit of knowing that these mortgages automatically then revert to a standard variable mortgage.
What do I do before I choose my construction project?
Construction mortgages can work a little bit differently to residential mortgages on an existing property. The first thing you will need to do is get pre-approval. Either owner-builder or commercial builders can apply for construction mortgages, and our construction loan specialists can help both get the money they need. To get pre-approval, make sure you have copies of your current payslips and any other income you receive, as well as any liabilities you have, such as credit card debt or other loans. Before you start looking for new home, it’s always a great idea to develop a detailed budget showing your monthly expenses. Make sure you have that available so we can use it to help you get a loan. Also, make sure you have evidence of your recent employment history, as well as proof you have lived where you now live for the past few years. We will work hard with our extensive range of mortgages and lenders to suggest an appropriate loan for you.
What happens next in the building and construction process?
Once you have looked at the mortgages on offer and chosen your construction loan, it’s time to do the fun stuff – pick your dream house and land package. At Mortgage House we can help you there, as well. We have a range of resources and data help your dream get off to the best start possible. Once you are happy with what you are being offered, and you want to move forward with the purchase, the next thing to do is arrange a visit to the construction site, so you can inspect everything first-hand. If you are happy, it is important to then write up your offer to purchase, conditional, of course, on the approval of your construction loan and any formal inspection you might want to do. We always advise our customers to negotiate a 10-day period to complete your inspection and get loan approval. That allows you a bit more time to think about things, and ask any more questions you may have. We want to make your dreams come true, and are happy to go the extra mile to make it happen.
Where do I find the best residential loans?
Once your home has been constructed, construction mortgages revert to standard residential variable loans. Our standard variable mortgages give you access to more features than a basic residential loan. Firstly, you will have access to redraw and offset facilities, which can add to your flexibility in the long run. You also have the ability to make extra payments, which can help you pay off your loan sooner, and also reduce the amount you pay in interest. Our standard variable mortgages can also be split into periods of variable and fixed rates, to help you deal with whatever life throws at you. As an independent lender, we have access to the same resources as traditional brokers, and we provide a wide range of tailored, flexible and competitive rates. Our secure and innovative online services can help save you time and money in the first instance, and our highly-skilled staff can walk you through every step of the journey. As one of Australia’s most awarded non-bank lenders, our experts can help you work through all the jargon and suggest the best mortgages for you and your family.
What is the difference between residential and construction loans?
A lot of planning goes into building a new home. Looking at the real estate market and making a decision to build is the first big decision, which is quickly followed by a lot of other decisions around the type of home, location, size, and then, during construction, decisions around features and fixtures need to be made. It’s also important to plan when it comes to the type of loan you may need. The last thing you want when you are looking to build a home is disorganisation around your finances. There aren’t a lot of differences between a regular home loan and a construction mortgage, but the differences are important. The main differences surround how your bank or lender will pay the builder or developer. Ordinarily, if you buy a home, a bank or a lender will settle with the seller for the full amount, all at once. With a construction home loan, a bank or a lender will agree to pay a builder in stages, after agreed building phases have been met. This is quite common, and requires regular inspections from your bank or lender to confirm the work has been done.
Do you only have to pay interest during the construction period?
With regular owner-occupied home loans, interest is included in repayments straight away. That’s the same with construction mortgages, but the interest payments may be lower at the beginning of the loan. That’s because you will only be charged interest on the amount a bank or lender has paid out to the builder. During construction, you will only be charged interest on the small amounts paid after each of the agreed stages. That means that while your dream home is being built, your repayments will still be made up of principal and interest amounts, if that’s the kind of loan you have chosen, but your interest payments will be lower. Once your home is built, and the bank or lender is satisfied with the result, the rest of the loan will be paid out and interest rates will go back to normal. When that happens, a construction loan becomes a standard mortgage again. It’s always worthwhile reading the terms and conditions of any type of loan to make sure you are aware of how everything works at the beginning and over the life of the loan.
What types of construction loans are available?
Whether you are a home builder or a home buyer, Mortgage House has a range of different home loans aimed at suiting your property objectives, whether that’s investing in real estate or purchasing your dream home. Our expert lenders take a close look at your financial situation and aim to present you with suitable home loan options. If you are looking to apply for a loan to build your house, we have a large range of construction loans to choose from. We have a range of fixed interest rate mortgage options, as well as variable rate loans that can all be used to build a home. A fixed rate loan means the interest rate will be fixed over an agreed period, usually between 1 and 5 years. A variable rate loan means the interest rate can increase or decrease over the life of the loan, depending on a range of both internal and external factors. Whatever your loan amount, and whether you’re after an owner-occupied or investment mortgage, our experience of more than 25 years means we can help you find what you are looking for.
How can you obtain an approximate building cost?
Construction mortgages generally require you to produce a detailed fixed-price contract before you apply for a home loan. Your builder will understand what that means, and should have no troubles in accommodating your request. The first step to getting a fixed-price contract is to make sure your plans are exactly how you want them. It’s important to take the time to work with your builder, or the developer to make sure everything is perfect, as early as possible. This is important because the bank or lender will base the valuation and the payments, on these plans. Remember you can’t use your construction home loan to purchase the land. Mortgage House has a range of other home loans that can be suitable in this circumstance. It’s also important to remember you may only have to pay stamp duty on the land component of house and land packages, not the construction of the home.
Can you choose your loan amount once construction is underway?
Ideally, it’s best to stick to your loan amount once construction has begun. Your builder should stick with the agreed contract and the agreed price, but if they change anything, they will need to negotiate and reassess the value of the loan. If you or your builder want changes after construction starts, a good tip is to pay for the changes yourself, if you can. That could mean taking out a small loan, or even using your credit card to make up any difference. If the changes are large, you will probably end up negotiating with your bank or lender, and any changes to your loan may take time, sometimes weeks or months. This can, therefore, delay construction, so it’s worth weighing all these things up before making such decisions.