Understanding Construction Loan Basics
If you're considering building your dream home in Rockingham, understanding Construction Loan structures is crucial for your success. Unlike traditional home loans, construction loans work differently because they're designed to fund your project progressively as work is completed.
When applying for a loan, you'll find that construction loans only charge interest on the amount drawn down. This means you won't pay interest on the full loan amount from day one - only on what's been released to pay sub-contractors and suppliers as construction progresses.
How Progressive Drawdown Works
The progressive drawdown system is the heart of Construction Loan structures. Instead of receiving the entire loan amount upfront, funds are released in instalments based on construction milestones. Here's how it typically works:
• Initial deposit and site preparation
• Foundation and frame completion
• Lock-up stage (roof and external walls)
• Fixing stage (plumbing, electrical, internal fit-out)
• Practical completion
Each stage requires inspection and approval before progress payments are released. Your registered builder will usually coordinate these inspections and submit claims through a Progressive Payment Schedule.
Interest Rates and Repayment Options
Construction loans typically offer interest-only repayment options during the building phase. The interest rate may be slightly higher than standard home loans, but remember - you're only paying interest on drawn amounts, not the full loan amount.
Once construction is complete, your loan usually converts to a standard home loan with principal and interest repayments. This transition happens automatically, making the process smoother for borrowers.
'As If Complete' Valuations
Lenders use an 'as if complete' valuation to determine your loan amount. This valuation estimates what your property will be worth once construction is finished, not its current vacant land value. This approach allows you to borrow based on the completed project's value, making construction financing more viable.
For major home renovations or house & land packages, this valuation method ensures you can access adequate funding for your project scope.
Essential Requirements and Timeframes
Construction Loan structures come with specific requirements:
• Fixed price contracts with licensed builders
• Council plans and permits approved
• Commence building within a set period from the Disclosure Date
• Suitable land that meets council restrictions and regulations
If you're planning to demolish existing property for a new build, additional approvals and development applications may be required. Your renovation Mortgage Broker can guide you through these requirements.
Fees and Additional Costs
Construction loans involve additional costs beyond standard loan fees. The Progressive Drawing Fee covers administration costs for each payment release - typically ranging from $300 to $500 per drawdown. Some lenders may also charge for building inspections or valuation updates.
Out of Contract Items not included in your building contract may require separate financing arrangements or additional payments from your own resources.
Planning Your Construction Project
Before applying, make a plan covering:
- Your ideal location in Rockingham
- Realistic price range including all costs
- Suitable building design for your land
- Understanding of council regulations
- Timeline for various stages of the project
Whether you're buying off the plan, undertaking major renovations, or starting a new build, proper planning ensures your Construction Loan structure aligns with your project needs.
Access to Multiple Lenders
G&T Finance can help you access Construction Loan options from banks and lenders across Australia. Different lenders offer varying terms, rates, and approval criteria. Some specialise in unique projects, while others focus on standard house & land packages.
Our streamlined application process helps match your project with suitable lenders, whether you need a home improvement loan for renovations or full construction financing for a new build.
Your construction project deserves proper financing structure. Understanding how progressive drawdowns, interest calculations, and payment schedules work helps you make informed decisions about your building journey.
Call one of our team or book an appointment at a time that works for you to discuss your Construction Loan needs.
