Construction Loans can be quite different to a standard home loan. Therefore, it is important to understand what you are entering into. The Construction Loan is a loan that is drawn down in stages as your property is being built. This means that your monthly mortgage repayments slowly increase as the construction moves forward until finally at completion of construction, the loan repayment reaches its full monthly repayment amount.

Many Lenders also offer interest only repayments during the construction process which revert to principle and interest repayments once the construction is complete. To qualify for a Construction Loan, you will need to have council approved plans and a fixed price tender from a registered builder. You should also note that you will need to use your saved funds or equity before drawing down on your Construction Loan.

For many building contracts a progress inspection at every mortgage loan draw down is arranged by the Lender. Always check with your Lending manager if you would like to make any variations to your building contract, prior to proceeding.

Upon completion of your property, the Construction Loan usually reverts to a standard variable rate.

Know Your Building Contract:

Finding a reputable builder is the first thing to do after you’ve made the decision to build the construction.

Next, you will need to enter into a building contract with a licensed builder.

The contract is a legally binding document. Always ensure you read the fine print It is your responsibility to go through the terms and conditions with your legal representative. Never sign anything unless you are 1004 certain you understand what it means. Ask the question of your builder — do you have all the necessary insurance policies in place?

Whilst the Lenders do not need to sight the following documents, it is strongly recommended that you obtain the following documents from your chosen builder:

• Builders License
• Home Warranty Insurance
• Employers Liability and Workers Compensation

Progress Payments

In a construction loan your builder is usually paid in draw downs (sometimes also known as progress payments) which occur when each part of the work is completed. This means that your monthly mortgage slowly increases as the construction moves forward until finally at completion of construction, the loan repayment reaches its full monthly repayment amount.

Builders usually will send you a progress invoice when a progress payment is due. Some building contractor may require a progress inspection at every mortgage draw down which is arranged by the Lender. Your Lender may also require you to sign a progress payment form that they will provide you which you would need to send back to them along with the progress invoice. Once the progress payment is approved by the Lender, the builder will be paid from your loan account.

Many construction loans have at least five draw downs. These draw downs may vary depending upon the building contract:

These draw downs may include the following:

• Frame Completion
• Slab completion
• Outer brick work completion
• Lock-up stage
• Workable completion

Regards: HH Finance