Finance for building a house: What do you need to know?

Sarah Tayler talks to Nova Oppusunggu from Loan Market to find out what the differences are between finance for building a house and finance for existing houses.

Q: What advice would you give people wanting to get a loan for building a house?

Unlike regular home loans where you typically receive a lump sum of the loan amount at settlement, construction loans are paid out in periodic progress payments from the lender at different stages of construction.

As construction starts on your property the bank will make progress payments to the builder and your mortgage repayments will go up each time a progress repayment is made.

In most cases there are 4-6 progress stages in the construction of property before it is completed. These stages normally consist of:

  • Deposit
  • Base Stage
  • Frame Stage
  • Enclosed Stage
  • Fixing Stage (roof)
  • Practical Completion (lock up)

During this time, you will also be making repayments for your land loan. Once your property is completed you will be making loan repayments on the full amount of your construction costs and land.

Q: Are there any tips you can give people to get approved quickly?

It is important to provide correct and accurate documentation to the lender you are applying to. Delays often occur when a single document or signature is missing. However, there are other factors that determine how quickly you get approved including the lender, the complexity of your situation and how quickly you return your mortgage documents.

Here are some of the most common documents you’ll need to have handy when you apply for a pre-approved home loan:

  • Proof of identification
  • Proof of employment and income
  • Proof of savings
  • Proof of current debts
  • Proof of assets
  • A completed application form

Q: What do you think is the most common problem people come across when applying for a loan?

The most common problem people come across when applying for a loan is trying to work out which lender or product is suitable for their current and future needs. There are a lot of options out there with new products that are constantly being introduced in the market, tighter lending restrictions and lender policies constantly changing.

Q: Is there any specific terminology for home loans when it comes to off-the-plan or house and land package properties?

Drawdown/Construction Progress Payment
Is the process of asking your lender to pay your builder for part of the work that has been completed, throughout the stages of construction.

Turnkey
With a turnkey property, the complete cost of the land and build is set out in a standard sale and purchase agreement between you and the builder.

Get in contact with Nova for more details about finance for your new home:0407 615 588.

Written: 4 July 2018, Updated: 21 January 2019

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