Most of the time, homeowners start by planning to spend out of pocket for their “builder’s dream” or “renovator’s dream”. But in many cases, getting a construction home loan comes out as the better financing option as it leads you away from risking your savings, investments, or even emergency funds.
A construction home loan is the lending solution for those who are building their home from the ground up or doing major structural work on their existing property. In a construction home loan, you receive instalments of the loaned amount as you progress at every stage of the construction project and not in a lump sum at the beginning. Tricky? A construction home loan is different from regular home loans, so it often requires a bit more work for those seeking to get approved for one.
How do construction loans work?
With a construction home loan, you still have the fixed rate and variable rate options, but the major benefit of this loan type is that you will be charged interest only on the amount that has been paid out by the lender to you so far. Only when the whole loaned amount has been released, which also means the completion of your home, will your loan revert back to a standard variable home loan.
A construction home loan is available to owner builders and registered builders. It is important to identify and agree on the project’s development stages with your lender so that the “progressive draw-down” or when the progress payments will be made is clear at the onset. This varies from lender to lender, but most usually follow a five-stage schedule:
Your builder, architect, council, surveyors, and other contractors are all a part of your new home construction. As such, for the approval of a construction home loan, you may be required to provide additional documentation. Further terms and conditions may also apply if you are an owner-builder.
What happens when construction is complete?
The best time in this entire process is being able to settle into your new home. Once you have finished construction, you will now be able to move into your dream home. Your mortgage broker at Lendstreet will continue being there for you by doing regular check-ins to find out if your home loan has been working for you. Overall, this should be a joyous time for you and your family. We are determined to make everything run as smoothly when it comes to lending so that you can enjoy your newly-built home.
If you want to get started on this process, all you need to do is to accomplish this form. As soon as that has been completed, we will reach out to you so that we can discuss your needs in more depth. We look forward to embarking on this new journey with you.
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