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A construction loan is needed when you want to build a new home, whether it’s on a block of land that you already own or part of a house and land package, and generally drawn down in stages as the builder reaches the different milestones stipulated in the building contract.
The lender uses an independent valuer to monitor the construction process and only makes progress payments when the builder has reached the defined stages and met satisfactory standards.
Most lenders only require interest payments on the loan during the construction phase. After completion the loan reverts to standard principal and interest repayments and you have the option of choosing between different loan types, including fixed rate loans.
In addition to standard requirements for a home loan application, the additional documents you will need to apply for a construction loan are:
- A “fixed price” building contract with a registered builder.
- The Council approved plans for the proposed house.
- The house specifications documents.
- A copy of the builder’s current building insurance.
- In the case of a house & land package, the purchase contract for the block of land.
Finance can be available up to 95% of the property value.
This differs to a construction loan in that you are not required to make progress payments during building, rather you sign a contract for the full value of the property, pay a deposit and make a single payment on completion of the dwelling in full settlement.
Off-the-plan purchases are common for multi-unit high rise constructions generally found in capital cities. You need to be aware there is a usually a long period of time between signing the contract and settlement of the property (sometimes up to 2 years or longer) and there may be some inherent risks due to the large time lapse.
As loan approvals are usually only valid for 90 days, finance is generally applied for very late in the process.
To find out more, contact your Citiwide lending specialist or phone us on 1300 732 630.