How A Construction Loan Works

When you decide to build your dream home, it may be easy to forget that arranging your finances is a key consideration.

However Construction Home Loans can become difficult to understand, making the process appear frustrating and time consuming. Our finance partners Resolve Finance have written this short article to help explain exactly how a construction loan works.

Here’s what they have to say.

If you decide to undertake a construction loan, there are a number of key aspects to consider. Most builders will want to see a pre-approval letter before they commit any drawing or costing of plans to ensure that you are able to service the loan size of the home you wish to build, so it is important to discuss this with your broker to give you the best idea of your budget when you start looking.

Once you have your pre-approval, in order to gain formal approval lenders will need to see at a minimum, council approved plans and a fixed priced building contract. With Resolve Finance, they deal directly with the builders, taking the hassle out of this part of the process for you.

Once the loan has been formally approved, documents are signed and the drawdown process can commence. The benefit of a construction loan is that you as the client are only charged interest only payments, that increase at specific milestones throughout the build. This saves you money as you are not paying principal and interest on the completed product when you physically are not able to live in the dwelling.

Generally, the milestones are as follows:

1. Slab down and complete
2. Frame up complete
3. External brick work complete
4. Lock up stage
5. Practical competition

Once your home has been completed, the loan is redrawn over to a standard mortgage, and unless otherwise arranged with your lender you will begin paying principal and interest on the loan.

At Dale Alcock Homes we want to help you into a new home. Talk to us today to see how we can get you into your new Dale’s sooner.