At Auswide Credit & Finance we understand that there are many headaches involved in construction, with the rightly structured finance can make a substantial difference. We are the construction finance experts and aim to help Australians find affordable funding in order to maximize the profitability of the project.
These loans are used for the construction of new homes or in some cases for major renovations.
They are set up to make payments to a licensed builder. These progress payments are made after an inspection to verify that the work is complete to that stage. This involves a cost charged by the lender to the borrower and is often referred to as a Progress Inspection Fee.
To determine the final value of the property the we will need you to supply:
- Construction cost estimates – Tenders, costs and quotes from the builder.
- Council approved plans and specifications, including any conditions of approval.
- Written details of any work to be carried out by the borrower, their family, friends or sub-contractors (sometimes this is not allowed)
- A signed construction contract with necessary insurances
Upon completion of the dwelling, the Construction Loan converts to the agreed choice of home loan.
Lenders may require the borrower to repay only the interest on the amount drawn-down to date during the construction period. This then reverts to the full monthly repayment on completion of the new home. This can help pay rent, or existing mortgage payments whilst the property is being built.
What do you need to apply for a construction loan?
Typically, lenders will require to see fixed-price building contract and council approved plans. The value on which lenders will estimate the whole package will be the land’s value plus the cost of the building. In case you will need more money for furnishing and landscaping, you can ask your lender to revalue the property once the construction is complete.
The progression on which you will get the money for construction will be based on how fast you complete each phase. As soon as you finish one phase of construction, you will be able to go to the next and draw money. A valuer usually does the job of checking whether the phase is complete based on the parameters set by the fixed price building contract.
A construction loan is a convenient and safe way to fund the building of your new home. Aside from saving interest, it allows you to borrow money against the value of the completed property and not just the current value. The fact that the bank controls the flow of funds also protects you from cost over-runs and minimises the chance that you will run out of money before your construction is finished.
Renovation loans explained
From small DIY fix-ups through to major re-construction projects, renovations can be a great way to add value to your home. There are a number of finance options available to renovators, so it’s important to understand which type is best suited to your circumstances.
Home Equity Loan
If you’re planning substantial renovations, a home equity loan might be worth exploring. This involves refinancing your existing home loan to release some of its equity, which can then be used to finance your renovation. To be eligible, your existing lending will need to be less than 80% of the value of the property, and you’ll need to be able to prove you’re in a financial position to service the loan.
Refinancing your mortgage will let you borrow additional funds to put towards your renovation. With interest rates currently low, this may be an affordable option. However, refinancing is essentially the same as taking out a new home loan, so it’s important you shop around for the best rates. A mortgage broker can help you to do this.