Understanding Construction Home Loans

A construction home loan is designed for people who want to build their home rather than purchase an existing one. It features a unique payment structure where you borrow in stages as the construction progresses. Typically, the payment structure is based on the completion of five stages:

1. Foundation: This includes levelling, plumbing, and waterproofing.
2. Frame: This stage covers brickwork, roofing, and windows.
3. Lockup: This includes external walls, windows, and doors.
4. Fit-out: This stage involves inside fittings and fixtures, plasterboards, cupboards, benches, plumbing, electricity, and gutters.
5. Completion: This final stage includes the completion of contracted builders and equipment, plumbing, electricity, and overall cleaning.

You only pay interest and repayments on the funds you have actually used so far. For example, if you have only completed the foundation, you only pay for the foundation stage. You will then start paying for the frame once work on the frame begins. The total amount you can borrow for the construction loan will partly be based on the final value of the completed construction.

While it is possible to use a standard home loan for building a house, the downside is that you will have to start paying interest and repayments on the entire loan amount from day one.

A construction home loan may be a worthwhile option if you are considering building your new home instead of buying an existing one. However, they differ significantly from standard home loans, so it’s advisable to speak to a mortgage broker to learn more.

If you would like to know more about construction home loans, contact us today.