Construction FAQs
- What is a contstruction loan?
- Do all lenders consider construction loans?
- What construction documents do I need when I apply?
- What other documents are needed before settlement?
- What are the stages of building that progress draws are made?
- When do I need to pay my portion of the building costs?
- When can I access the funds for the extras, such as driveway and finishes?
- Can I be an Owner Builder or use Contract Builders?
- Can I purchase land and then apply for construction finance before the plans are approved?
What is a construction loan?
This type of loan is designed to create value in a property before the building has actually been performed. The lender will organise a valuer to establish a conservative value for the property on completion. The Lender will then advance funds against this future value in instalments
The lender will usually require a fixed price tender to be submitted which will indicate the type of dwelling and quality of finishings that will be used. Unless the equity position of the applicant is quite strong, the tender being fixed will be very important as it prevents costs from escalating
Do all lenders consider construction loans?
No, but most of the large lenders will
What construction documents do I need when I apply?
These documents will help the bank determine the ‘POST CONSTRUCTION’ value of your property
- Copy of tender or building contract
- Copy of Plans – Council approved plans must be submitted to the lender prior to the initial progress draw to the builder
- Copy of Specifications
- Quotes for extras such as driveway, landscaping, turf, fly screens, carpets, window furnishings, etc
What other documents are needed before settlement?
These documents will be required prior to settlement and progress draws:
- Council approved plans
- Signed building contract, completed in full, dated not more than 1 month prior to the date of application, signed by all parties to the contract with the Builders name and registration details
- Building Agreement
- Builders Insurance
- Builders Indemnity/ Public Risk Insurance
- Slab Survey
What are the stages of building that progress draws are made?
Each lender releases the progress draws according to their own policies. The Borrower is required to authorise the requests for progress payments by signing the invoice from the builder prior to submitting it to the lender.
- Base Stage: When the footings, base walls, piers, columns, concrete slab, or timber bearers, joists or flooring (as required) have been completed ready for the erection of the walls
- Frame Stage: When the building frame is completed and ready for Local Authority inspection
- Lock Up Stage: When the external wall cladding and roof covering is fixed, the flooring laid and the external doors and windows fixed
- Pre-Paint Stage: When the home has been completed except for painting, final electrical fit-out, laying of floor coverings, commissioning, cleaning and site clearing
- Practical Completion: When the building work has been completed in accordance with the contract and all relevant statutory requirements and inspections have been satisfactorily completed
When do I need to pay my portion of the building costs?
The Borrowers own funds are used first. The lender will consider progress draws at the agreed percentage of work completed, according to the amount of Borrower funds available.
When can I access the funds for the extras, such as driveway and finishes?
- Provided the lender has approved the extra funds based on quotes provided, application can be made for payment to the Contractor when the work is complete
- Any extra funds approved in addition to the building contract, without quotes being submitted, will only be paid once the final payment has been made to the Builder
- If there is sufficient equity you can access some funds prior to construction starting.
- Examples of where this may be handy could be if you are installing a pool and it needs to be done prior to building works
Can I be an Owner Builder or use Contract Builders?
Some lenders will consider applications by Owner Builders, but certain conditions are attached to these loans. Each lender has their own specific requirements – however these are common:
- Usually, the total loan amount sought must be less than 75% of the value of the land and construction. Some lenders may only consider a loan for a lower percentage than 75%
- The applicant (Owner builder) must demonstrate the ability to complete the project i.e. detailed costing provided, reputable trades people (sub contractors) employed
- The applicant must also have an owner builders permit which is gained by completing a course by the HIAA (Housing Industry Association of Australia)
- Estimates or quotes must be held for large expenditure items such as brickwork, carpentry, electrical, plastering, plumbing and kitchen
- Large furnishing items such as floor coverings and window furnishings, are included in overall budget
- A realistic margin for escalation in costs must be allowed
- Appropriate housing guarantee and/or insurance cover must be arranged to cover the domestic building work, in accordance with State legislative requirements. A copy of the housing guarantee &/or insurance policy must be provided to the lender
- Tentative on completion valuation must be obtained
Can I purchase land and then apply for construction finance before the plans are approved?
Yes
We submit an application for finance for the purchase of the land, requesting full approval to enable settlement to take place
At the same time, we submit an application for finance for the construction and request a pre-approval, which can be converted to a full approval when required
