31 Mar 2022

Is It Harder to Get a Construction Loan than a Mortgage?

Construction Loan and Mortgage

The Australian government invests resources to help first-time homebuyers become homeowners. Therefore, the conventional mortgage and home loans for first-time homebuyers have the most safety nets. If a homebuyer doesn’t qualify for a mortgage, several avenues exist to help them receive approval. For example, first-time homebuyers can obtain a family pledge mortgage. They can also add a guarantor.

Construction loans do not have these kinds of safety nets or resources. Thus, obtaining a construction loan is more difficult than a mortgage. Moreover, construction loans have another layer of requirements. For example, applicants must submit their budget estimates and building plans. The information helps the lender determine the fund disbursements and progress payments. Plus, applicants must obtain a series of permits. A construction project can face several delays and go over budget. If it does, the lender wants to ensure that the applicant can handle the financial bumps.

Owner-builders and investors should keep in mind that lenders finance a 50% to 70% loan-to-value ratio for construction loans. Thus, applicants must find the remaining amount or provide it through other means. Lenders have faith in mortgages. Even in tough economic times, most homeowners continue repaying their home loans. Construction projects fail at a higher rate at several stages of the process. Thus, lenders exercise more caution. 

To prepare, try our home loan interest rates calculator.

Construction Loan and Mortgage Conclusion

Obtaining a construction loan does have a different set of parameters than a mortgage. The parameters make it more difficult to obtain. Nonetheless, you can explore your options with Mortgage House. Contact our loan specialists today.

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