What is a construction home loan?
As one of Australia’s most awarded non-bank lenders, Mortgage House has a range of loan and mortgage finance options whatever your property goals. We proudly focus on providing all our customers with loan, product and service outcomes that are tailored to their exact needs. When you decide to buy a block of land and build a home, Mortgage House has a range of options available to you. One of the most popular kinds of home loans available to those who build a house is a construction home loan. A construction home loan is similar to a regular loan. Interest rates don’t work any differently, with both fixed rate loan and variable rate options, and the fees and charges are also likely to work the same way. But there is one significant feature that makes construction home loans attractive if you’re planning to build a house. A construction home loan allows you to stagger the payments to your builder, once agreed development stages have been met. This is important because you will only be charged interest on the amount you have paid out, a feature that can save you money. Once your home has been built, the loan will revert back to a standard variable home loan. A construction home loan is available to owner-builders – those who build a home on their own block of land – or a registered builder. When you’re working out whether a construction home loan is suitable for you, there are a range of variables to consider including:
- Funds will be paid to you in drawdowns ensuring you only pay interest on the portion of the mortgage you have used.
- Option to make interest-only payments for the land portion prior to and during the construction process.
- You have up to 24 months to complete construction after settlement of the land, giving you the chance to plan things out.
- The loan may be split between two accounts after construction is complete to identify personal and investment debt.
- If you’re an owner builder, the maximum loan-to-value ratio will be 50%.
- Funds are released only at predetermined stages after proof of work has been established.
- There can be a number of terms and conditions, including having council-approved plans and a fixed price tender at time of application.
That last point is one worth remembering. With regular loans, you may be able to secure pre-approval for your home loan based on the likely amount you will pay for a home. However, construction loans can come with a few more terms and conditions. None of them are really arduous, but they are worth noting. The main one to note is that when you apply for a construction loan, the bank or lender will want to see you already have plans that have been approved by the local council, and you have a fixed-price contract for your new property. It is always good to demand a fixed-price contract when you build a home. Not only can it help you with your construction loan application, but it can also ensure there are no hidden costs and overruns as you get further into the build.