Useful Tips

Construction Loans

Every lender has their own terms and conditions, and this is intended only as a general guide to understanding this topic. Contact us to discuss your individual circumstances.

A construction loan operates slightly differently to a standard home loan.
Construction funds from the loan are progressively drawn down at each stage of construction, as detailed in the fixed price building contract.

Each progress drawdown is referred to as a “Progress Payment”, and the lender pays them directly to the builder.
If the lender is only funding a portion of the cost to construct your home, you must contribute your own funds before you can draw down the loan funds.

You must make interest payments on your construction loan during the construction period, interest is charged on the funds that you draw down.
Generally after construction is completed your loan will convert to a Principal and Interest loan.

Lenders will arrange for valuations at various stages of the progress draws – some may only do a final valuation, others may do multiple.

You may need to provide information similar to the following to enable the lender to pay your builder at each completed construction stage:
1. Progress Payment Claim Form signed by borrower(s) authorising the payment.
2. Copy of builder’s progress claim or invoice.

You will only be able to have funds advanced for works that have been completed. Funds will not be advanced for materials purchased or delivered on-site but not incorporated into the structure.

Once construction is complete and you require your final progress payment to be drawn down, you may need to provide information similar to the following:
1. An Occupancy Permit, in respect of the building works, and any other permission that is required by any relevant authority in relation to the occupation of the land.
2. A Building Insurance policy or Certificate of Currency for an amount not less than the value of the completed building.