This, as the name suggests, is a type of loan you might come across if you’re starting from scratch with your home.
If you are planning to build your own home or investment property, a construction loan may be best for you. A Construction loan works by have a fixed price building contract from a registered builder as well as council approved plans. These loans are generally fixed for the build period and revert to principle and interest once the building is completed. The construction loan allows you to draw money during period of the build these generally include;
- Base
- Frame
- Lock up
- Fixing
- Completion
As one phase of the construction is complete, you are able to draw down the next portion of the loan.This means that interest is only being calculated on that amount which has been physically drawn down, and you are only making repayments on the portion you have used. When construction is complete, you can nominate which product or loan type your loan reverts to.
When you decide to build and apply for a construction loan, the lenders will need to see, at minimum, councilapproved plans and a fixed-price building contract, before they will unconditionally approve a construction loan.