A construction loan is your go-to option when you want to build your dream home in Australia. A regular mortgage is used to purchase an existing property. Construction loans are also used to finance major renovations on an existing home or an incomplete construction that requires a little, or a lot of work before you can finally call it your home.
Interest Rates for Construction Home Loans
Securing a relatively low-interest rate is what you would want to achieve when applying and getting approved for a construction home loan. In Australia, current interest rates for construction home loans ranges from 3.74% to 4.19% for loans with 70% to 80% maximum LVR. For 95% LVR home loans, interest rates start from 5.34% and 6.40% for owner occupier construction loans with 90% LVR.
Interest rates mainly depend on the current market, thus varying, together with your profile risk as a borrower. The amount of down payment you can afford also has a take on how high or how low your interest rates will be. A bigger down payment often enjoys a lower interest rate. However, most lenders would require a 20% deposit of the total cost of your build, especially if the value if your lot is not significant. A good credit standing also counts a lot in reducing your risk as a borrower – thus lower interest rates for you to avail.
Application fees and on-going fees are sometimes included in your home loan application. Upon approval, you will be required to pay for these fees together with your down payment. Application fees can go anywhere from $350 to $360 while on-going monthly fees may cost you as low as $8 a month, while for some $250 annually.
Construction Loans Features
Depending on the loan you’ll acquire, features such as redraw, and additional repayments may not yet be accessible. However, these features will be available after every construction phase. You might want to have extra cash handy to be able to continue with the construction even without a redraw being released by the bank.
A clear idea on how the process of drawing down and accessing funds should be facilitated during the contract signing on your loan. The construction timeframe should be clearly understood by both parties as this plays a big role in assigning drawdown periods during the construction of your home.
4 Top Things to Consider When Applying for Construction Home Loans
It would be ideal to create a thorough assessment of these areas on your application as well as after the approval of your mortgage to ensure less stress and success in your home building.
1. Is a home and land package ideal for a construction home loan?
You can only take out a construction loan if you are working with a licensed builder or if you are the licensed builder that is about to work on a home construction or major renovation. If you buy a land and then build a home, you may have to apply for two mortgages. One for the land and another one for the actual build. If you have already purchased a lot prior to applying for a construction loan, this might be a feasible project on your end.
2. Is a licensed builder required to build your home?
Most banks and lenders would feel more secure in approving a construction loan for you if you are a licensed builder or if you are working with a licensed builder. Constructing a home is a big project. There are the risk and unexpected circumstances that you may encounter during the build. Experience and expertise also increase the chances of a safe, secure and successful construction. Check if you are indeed working with a licensed builder through this post.
3. Are there clauses involved in applying for a construction loan?
A finance clause is sometimes included for construction loans in Australia when working with vacant lands or properties. This is very common when the lot is purchased via a private treaty sale. Including finance in your construction loan contract has many benefits.
- It protects you from forced take out finance that is not fit for your needs
- Clients can get out of a contract if the mortgage application is not approved
- Removes the lot from the market up until you get an update on your finance application
- Provide additional time to get results from your finance application
4. What happens if there are changes in the construction contracts?
Sometimes, your lender may require making your construction loan amount higher. Material costs and other prices concerned with the construction might go higher even before you get approval or result on your application. To be able to prevent this, you can do the following tips
Finalize and complete your building contract before sending it to the bank, your lender or your mortgage broker. Create an agreement with your contractor about reimbursing or discounting items in the event of changes in prices during the construction period. In return, you can also commit to paying with your own money any excess that may be incurred on top of your loan amount when prices change during the construction period.
Intellichoice’s Mortgage Brokers can do the heavy lifting and help you secure the mortgage you need to fund building your home.
Applying and getting approved for a construction loan is more challenging than your regular mortgages. Owner builder loans are even more different. Whether you are taking out a loan to build or renovate, the process will be the same and the construction process can be both stressful and efficient. The risks are there with so many stages of construction to worry about.
However, your success depends on getting a licensed contractor that has proven their skills in completing projects such as yours. Another success story would be knowing how to find the best comparison rate for your loan and getting approved with loan repayments favorable on your end. Get the best options with Intellichoice. Call us at 1300 55 10 45.
