If you’re dreaming of building your dream property rather than buying a new one, then you’ll be glad to know that acquiring a loan is still possible. However, it works a bit differently than a regular one, which is known as a construction loan.
The goal of a construction loan is to assist you in paying for your project gradually rather than all at once. This is because building a home is a process that occurs in stages, involving roofing, frame installation, slab laying, and more.
With a standard home loan, you receive the full amount upfront. But with a construction loan, the lender releases funds gradually, known as progress payments. You only pay interest on the money that’s been drawn down, which can help reduce your repayments early on.
Here are a few key things you should know:
Progress payments: Your builder is paid in stages as different parts of the build are completed.
Interest-only repayments during construction: You’ll usually only pay interest until the build is complete.
Final loan amount: Once the home is finished, your loan typically converts to a standard principal and interest loan.
Extra paperwork: The lender will want your building plans, a fixed-price contract, council approvals, and builder’s insurance before approving the loan.
Valuations along the way: The bank might inspect the property at each stage before releasing the next payment.
Building a home can be exciting, but the process is a bit more involved. That’s where we come in.
At Sapphire Estate Agents, we’re here to guide you through the journey from choosing land to understanding your finance options. Got questions about a construction loan? Reach out. We’re ready to help make your build a smooth one.
