Construction is a part of the process for many homeowners. Whether you are building a new home or renovating and expanding your current home, you can apply for a construction home loan. How do construction loans work, and how do you apply?
Construction loan basics
When you apply for a construction home loan, you will need to provide your lender with copies of the building contract and the construction plans. They will have a property valuation done to estimate the property’s value when the project is complete. They will compare this value to the cost of the land plus construction. The lower amount is what the banks will use to assess your loan amount. Construction loans are drawdown loans, meaning that the banks will pay your contractor or builder directly after each construction stage is complete.
Application documentation
Most lenders require you to provide copies of the following documentation with your loan application:
- The building contract detailing the phases, drawdown schedule, project length and the final price
- Building plans so a valuation can be performed
- Specifications outlining materials, appliances and other features
- Additional work quotes, including swimming pools, landscaping, driveways or other work not done by your contractor
With constructions projects, it is so easy for you to go over budget. It is vital to save as much as you can during constructions to avoid running out of money. Some lenders will approve you for a loan amount that is slightly higher than the estimated project cost to make sure you have enough money to complete the project. However, this is not always the case. A mortgage broker can help you find a lender that will approve you for a higher loan amount. Mortgage Street and our team of brokers specialise in constructions loans. As a non-bank lender, we can approve you for loans with better interest rates and funds that fit your needs.