Building a new home has never been more popular, thanks to low interest rates, and Government incentives such as the Home Builders Grant (now closed), and the First Homeowners’ Grants. With more businesses offering work from home options, commuting to work from outer city regional areas is now practical and desirable.
But building is not as straight forward as it seems. There can be long delays with land in short supply in some areas. And, once building begins, everything needs to be in order, so progress payments can be made promptly.
Our Home Loan Specialist Team has extensive experience in this field.
Below are some important facts for you to know….
Most lenders will lend up to 95% including lenders mortgage insurance, so you will need to contribute a minimum of 5% of the total of the land and building valuation plus any additional funds required to complete the transaction.
With a home construction loan, the lender considers the total amount required to pay the builder to complete construction. This amount is then broken down into ‘progress draws or payments. These payments are made to the builder at various stages during the construction process. Once all payments are made, these will equal the total of your loan.
Construction Loan Documentation
For house and land packages, you will need to show two contracts:
- A contract to purchase the land which will make up a separate loan and can be fixed or variable and will be principal and interest repayments.
- A Fixed Builders Contract for the construction of the home. This will make up the construction loan. With most lenders this loan is normally offered as “variable and interest only” until construction is complete. After, this the loan will convert to principal and interest repayments.
If you are considering knocking down and rebuilding, or already own the block of land, then the lenders will need the Fixed Builders Contract only, as advised above.
Upon approval of your construction loan, lenders will make progress payments throughout the various stages of construction. Progress payments will typically be paid directly to the builder at the completion of each stage. An initial five percent of the total contract price is paid prior to the builder commencing any work including preparation of plans and obtaining council approvals.
The building stages for progress payments are as follows:
Stage 1: Slab down or base: Typically, 10 percent of the construction cost is provided to build the foundation of your property. It can cover earthworks, the levelling off the ground, plus plumbing and waterproofing.
Stage 2: Frame stage: This is the exciting stage, as you see your home dream come to life. The progress payment of about 15 percent will enable the frame of your new home to be built. It can cover partial brickwork, the roofing, trusses and windows.
Stage 3: Lockup: At this stage, your new home will have external walls, windows and doors, so it is enclosed, or lockable. The progress payment of approximately 35 percent will allow the builder to complete this important stage.
Stage 4: Fitout or fixing: Now the fun begins with your chosen fitting and fixtures. A further 25 percent is required to cover plasterboards, the part-installation of cupboards and benches, plumbing, electricity and gutters.
Stage 5: Practical Completion: Your new home dream comes true. This is the last and final stage, covering all contracted items typically 10 percent to cover final payments for builders and equipment, as well as any finishing touches such as plumbing, electricity, and overall cleaning. It’s important that you conduct a thorough inspection with your builder prior to hand-over.
To ensure everything goes smoothly our Home Loans Specialist will oversee the progress payments on behalf of our clients. This is an additional check to ensure compliance requirements are met, and to give our clients peace of mind.
We love to keep in touch and see how our clients are going too. As part of our ongoing service, our clients will receive an annual financial health check to review existing loans, and to consolidate where appropriate.
If you would like more information on the construction loan process, or to arrange a preapproval, contact our team.
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