BUILDING & CONSTRUCTION LOANS
A Construction loan is used for the building of a new home after land has been purchased.
You do not need the entire amount of the loan drawn down all at once therefore progress payments are made to the builder on your behalf. Progress payments are interest only until you have fully drawn down your loans, which means that you only pay interest on the portion of loan that you have used rather than the full amount.
Before a lender will formally approve you loan they will want to see the following documents at minimum:
- Council Approved Plans
- A fixed price building contract
During the draw down stages the bank will send out a valuer to inspect the property to ensure that that work they are claiming has been completed has actually be done. They will not authorise a payment to the builder until this has been done and can also give you piece of mind that the builder is completing your build in a timely manner.
The bank looks at the value of the completed property as being the land cost plus the building cost. Eg. You purchase land for $200,000 and the fixed price building contract is for $250,000 the value of your property at the end of the building will be $450,000.
There may be identical properties in the area on the same size blocks that have sold for $550,000 which could give you reason to get the bank to do another valuation when completed if you were requiring more funds for landscaping etc.