What is a construction loan?
A construction loan is also known as a fixed price contract, whereby the bank or lender provides an agreed fixed amount, but will not disperse funds to you directly, instead the funds will be used to make progress payments to your builder as they complete each stage of the building project. Once your new house is complete, the construction loan becomes a mortgage.
A construction loan usually only covers actual construction costs, and not the purchase of land. Hausing Mortgages can deliver a loan solution for the purchase of land if required.
Why Choose a construction loan?
The funds will be paid to your builder as they complete each stage of your home. This means you only pay interest on the portion of the loan that has been drawn down.
Construction loans are available for registered builders and owner-builders. Registered builders may offer a construction loan to their clients as part of a finance offer. There is usually a 24 month time frame provided in order for construction to be completed after settlement.
As the mortgagee, you only pay interest on the amounts drawn down. This helps to pay for your new house while you are waiting to move in. Essentially you are paying interest on incremental payments instead of interest on the whole lump sum.
A construction loan automatically reverts to standard variable mortgage once the final stage is complete and you move in to your brand new home.
As they are not a traditional mortgage, you will need pre-approval for a construction loan.
When you meet with a Hausing Mortgages loan specialist, you will need to bring the following documents:
- Copies of current payslips (including employment history) and proof of other income like rental income or monthly pension payments
- Copies of home loan statements or credit card statements
Building a brand new home is an exciting prospect. It’s an experience that can be made much easier with the correct finance product to ensure you are not paying for something not built yet. Talk to Hausing Mortgages for more information about construction loans suited to your personal situation.
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