Want To Build Instead of Buy?

 

Whether you’re building your dream home or doing renovations, getting the right construction loan can make a big difference.

You have enough on your hands undertaking a large construction project, so let It’s Simple Finance help you find a loan with a no-cost service saving you time and money.

Construction Loan

We believe that every Australian deserves the chance to build the home of their dreams at the best possible comparison rate. We’re well aware that undertaking a construction project can be time-consuming enough. That’s why we’re here to help you find the perfect loan for your objectives, financial situation, and goals at no cost.

Expert Advice

Never fall prey to hidden clauses, ongoing fees, or bad advice from lenders. We explain every aspect of construction and home loans in a way that’s simple and easy to understand.

Find the Best Comparison Rate

We secure you the maximum loan amount for your needs without spending hours comparing interest rates. We’ll do the leg work for you and narrow it down to the best handful of options for your situation.

We’ve Got You Covered Every Step of the Way

Need help turning your construction loan into a home loan or locking in a lower interest rate? No matter where you’re at in the process, we’re happy to help.

How do construction loans work?

A construction loan is a type of home loan designed for those who are interested in building their own home or doing extensive remodeling, as opposed to buyers interested in purchasing existing properties.

One of the major things that set construction loans apart from the average home loan is the way their payouts are structured. Rather than receive the entire loan amount in a lump sum upfront, you’ll receive installments in various stages. These stages are known as progress payments.

Is it difficult to get a construction loan?

If you’re interested in a construction loan, Australia has plenty of lenders who offer them, though not all do because they tend to be somewhat specialized. Getting your construction loan approved can be tricky, especially if you are an owner builder but are not a registered or licensed builder yourself.

Some lenders may consider owner-builders a higher risk and require a higher deposit, an additional interest rate loading, or extra fees. Supplying additional documentation such as a quantity surveyor report may help improve your odds of getting a loan offer.

Working with a broker can be an invaluable part of connecting with the right credit provider and ensuring you make smart financial decisions every step of the way.

You should also understand that before you can apply for a construction loan, your building plans will need to be approved by your local council. This step can generally be handled by your architect unless you are an owner-builder.

In addition to your council-approved plans, you’ll also need to submit your builder’s contract, insurance policy, schedule, and other relevant documents when applying for your construction loan.

The potential credit provider will then assess your financial situation using normal lending criteria, just as they would with a regular home loan. This is meant to help make sure that you can comfortably afford to make your payments. At this point, a property appraiser will determine the expected value of your project in order to help the lender determine how much to offer you.

How do progress payments work?

Each progress payment will provide your licensed builder (of you if you are an owner-builder) with enough funding for each of the various stages of construction. Your licensed builders will provide you with signed invoices that your broker can then forward to your lender, who will then release the funds needed to move onto the next stage of the construction process.

Whether you are an owner-builder or plan to hire a licensed builder, one of the major draws of construction loans is that they allow you to avoid paying interest on the full loan amount until construction is complete.

You’ll typically only be responsible for paying interest on the progress payments that have already been released or “drawn down.” Some lenders may even grant you a construction loan with interest-only payments until your home has been completed.

Is the cost of land included in a construction loan?

Land loans and construction home loans can be taken out separately, but are often bundled together in a land package. If you have an existing land loan, you may be able to use money from your building loan to pay it off.

If you already have a land loan, be sure to speak to your broker about your options.

When can construction start?

Once your land purchase has settled and your construction loan has been approved, you’ll typically be able to begin right away. One of the first things your builder will need is an upfront deposit to cover the initial costs of materials. This will typically be around 5% of the total building cost.

Your lender may be able to cover this cost as long as you’ve provided them with all the relevant documents and alerted your builder that this is the plan from the beginning. Once the builder receives this deposit, they’ll be able to start construction.

While your construction period may vary based on the lenders, you’ll usually need to begin building within 6 months and complete your construction process within 2 years.

Are there acceptable building types?

This will largely depend on where you plan to build and whether or not the local council will approve your plans. Given that you should obtain their approval before the building process begins, one of the first steps, if you are an owner-builder, is to apply for a Development Approval (DA) from the local council.

If your plan is to renovate an existing property, then you should ask the potential sellers if they can supply a copy of the building certificate prior to making your purchase. This will go a long way towards ensuring that your planned renovations are up to code.

While a construction loan may include more benefits for a future owner-occupier who is looking to build their own property, it must be approached a bit more thoroughly than the average home loan. Even if you are able to get an interest loan with a great comparison rate, your financial situation should be prepared to cover more than just interest repayments.

Initial Deposit

Just like with other types of home loans, you’ll need to make sure you have enough to make a deposit when taking out a loan for construction. This will usually be a percentage of the principal and interest that you’ll need to pay upfront.

Much as with a traditional home loan, the exact percentage you’ll want to have on hand may vary. Your broker can help you find loans with the best comparison rate and help you determine if putting down a larger deposit upfront could help lower your interest rate.

Pre-Start Meeting Costs

Before signing a building contract, make sure you understand the difference between provisional sums (PS) and prime cost (PC). Both of these terms are used frequently and it’s important to understand what they mean.

Provisional Sums

A provisional sum is an amount that a builder estimates it will take to complete a certain aspect of construction or purchase a given material. Provisional sums, by their very nature, are subject to change simply because they could not be precisely priced when the contract was drawn up. In other words, they don’t tend to account for unexpected surprises, which may end up needing to be tacked onto the final cost.

Prime Costs

Prime costs are costs that are subject to change in pre-start, or the initial stages of construction planning. The builder will usually list an estimated amount for things like doors, tiles, etc. in anticipation that their costs may change when you supply them with more information about what you’d like.

Be prepared to see the price of these items rise a bit, as many builders have deals with specific manufacturers who sell them the items for a discount. Sometimes the items they’ll suggest tend to be on the cheaper side, so it may raise your budget significantly to change them. Regardless, it’s worth making the changes now so that they can be factored into your loan rather than having to pay out of pocket to have them replaced once construction is completed.

Contract Changes

If there’s one thing you want to avoid at all costs, it’s variations on a contract once it’s signed. This is why it’s so important to comb through your project plans before signing in order to make sure that they reflect exactly what you want.

From variations as large as tacking on an extra room to something as small as changing the type of paint you want to be used, changes can come with a mark-up of up to 25%. Some builders may even charge an additional variation fee, which you should be well aware of before attempting to make any last-minute changes.

Owner-Builder Insurance

If you decide to build your own home without the help of a licensed builder, then it’s absolutely vital for you to take out public liability insurance. As the site manager, you are responsible for the safety of your building site.

If someone should be injured on or even near your building site, you can be sued for hundreds of thousands of dollars if they can prove that their injury was caused by your negligence. Public liability insurance will help protect you from this kind of unexpected disaster.

Finishing Costs

Having a thorough final picture of your completed home in mind will go a long way towards helping you budget for things that your construction loan may not cover. If you haven’t selected a “turn-key” package, then you may want to set aside up to 10- 20% of your budget for your home’s final touches.

Final touch items can include things like carpeting, paint, fencing, air-conditioning, landscaping, and paving. How much you should set aside will often depend on the specifications of the contract you’ve drawn up, so plan on being incredibly thorough during the planning phase.

Securing the right loan amount at the best comparison rate

Sorting through the various banks, credit unions, and other lenders who offer construction loans is only the beginning of your journey. Nonetheless, this is the stage where it’s highly recommended that you seek independent advice from a professional such as a finance and mortgage broker.

Your broker will be able to help you refine your personal objectives, understand credit criteria, and connect you to a relevant credit provider with the best comparison rate. Your broker will also be able to help you understand the difference between construction loans and a standard home loan and decide which is best for your situation.

Not only will seeking independent advice save you the time and energy of searching out the best comparison rates, but it will also provide you with a financial partner who help you secure the maximum loan amount needed with the best possible terms for your project.

The Five Stages of Progress Payments

As opposed to standard home loans, construction loans lend you money in various installments so that you only have to pay interest on the amount you need in each stage of construction. If you’re able to get a loan with a great comparison rate, this can go a long way in keeping interest rates low so that you can focus on your project.

Once you have your building contract and loan in place and are ready to begin, your lender will be able to begin making payments to your builder throughout each stage of construction. There are usually five stages from the first payout to the final progress payment. After each is complete, you’ll need to submit an invoice from your builder to your broker or lender so that they can issue the next payment.

Lenders will often even send someone over to your property to ensure that the construction loan work has been completed for each phase before issuing the next payment. This is actually to the benefit of the home buyer because it helps to ensure that each step is completed along the way.

While various building loans may differ slightly, here’s a general overview of what home buyers can expect at each stage:

Stage One: Slab or Base

The first of the loan amounts you’ll receive will cover the base of your new home. This is when the builders will level the ground and pour the concrete slab that the rest of your property will be built on. Once the slab has cured, the builders will then install your plumbing and drains, as well as ensure that the foundation is waterproofed.

Stage Two: Frame

Now it’s time for the builders to begin working on your house frame. This stage will always involve building the skeleton of your home but also cover the installation of its internal and external support structures, as well as conduits for your electrical and plumbing systems. It may also include the beginnings of roof sheeting and gutters.

Stage Three: Lock Up

The lock-up stage is when your home will really start to take shape. This phase of construction costs will cover external walls, roofing details, windows, doors, insulation, and all the other building components needed to “lock-up” your home.

Stage Four: Fit-Out or Fixing

This stage will see the interior of your home decked out with things like shelves, cabinets, interior doors, and tiles. It’s also when your lights will be installed and your electrical and plumbing systems will be finalized.

Stage Five: Completion

Your builders will use the final payment to make sure all the final touches are installed and any painting or detailing is completed. It also includes site-clean-up as the builders make sure your property and the surrounding area look their best as your project prepares to transition into an established property.

Construction Loans After Completion

Your next financial steps in becoming an owner-occupier will largely depend on your contracted loan term and other specifications of the agreement you worked out with your lender.

If you were able to work out a loan with interest-only repayments during construction, you may want to ask your lender if you can continue on this scheme until you figure out your next move.

Alternately, you can also change to paying your loan principal and interest at this time. Some homeowners also choose to either refinance their construction loan, convert it to a standard home loan, or use an existing home loan to pay off.

If none of these is an option, you can also apply for a new home loan or end loan in order to make the final payments on your construction loan.

If you’re an owner-occupier who finds yourself unsure what to do next, then our brokers are happy to help you assess your financial situation. Whether you’re attempting to convert a construction loan to a home loan with the best comparison rate or looking to take out a new home loan altogether, we’re happy to help you find the best lenders with the lowest interest rates.

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Frequently Asked Questions.

When applying for the loan you need to provide a copy of the building contract/tender and the plans. The lender will then ask their valuer to provide an estimate of the on-completion value of the property. They then assess the loan on the lesser value of the land price plus construction costs, or they will use the on-completion value. If it’s an investment property, some lenders will consider future rental income which can improve your borrowing power.

Provisional sum items are estimations of labour and materials. Labour and materials cannot be costed exactly at the time that the contract is entered into, and the builder will have to make allowance in the contract price. These items include things like soil removal, landscaping, demolition costs, and traffic control.

A prime cost item is a fitting or fixture that hasn’t been chosen by the owner or its price is unknown at the time the contract has been entered. This includes estimates for supply and delivery.

If it’s a fixed price building contract or a house and land contract, builders will typically allow small alterations to the finishes, but they will likely not allow any major or structural changes. This doesn’t necessarily mean you can’t make major changes at all as some builders will agree to allow them, but the cost would likely be considerable.

Yes, the builder is entitled to charge interest on overdue payments. As long as there is good communication with the builder, you should be able to come to an agreement if a payment does not come in on time.

A start date could be pushed back due to things like council approvals and the weather. If the builder doesn’t start work despite this, it could be considered a breach of contract. If this occurs and the builder does not respond to you, you should seek legal advice.

1. Preparation – includes plans, permits, connection fees, insurance etc.

2. Base – things like the concrete slab, the footings, and bas brickwork

3. Frame – when the house frame has been completed and approved

4. Lock-up – this is where the windows and doors, roofing, exterior, and insulation are done.

5. Fixing – items like the kitchen cupboards, appliances, bathroom and toilet are done. Plumbing and electrics come in here too. Also, your home is plastered and painted.

6. Completion – fences go up. The site is cleaned up and the builders receive their final payment.

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