Construction Home Loans Perth.

With a normal home loan, you repay the full amount (principle) of the loan including interest from the very beginning. With a construction loan, you pay interest only on the build during construction and principle and interest on the land. 

It can take up to 12 months, on average, before you begin making a full repayment on your home loan. This can save you a lot of money while you are constructing your new home. Once the build is complete, you revert to a normal home loan. 

Applying for a construction loan differs somewhat from the process for a normal home loan. Like most home loan applications, you will need a deposit and proof of income and expenses. This enables the lender to assess your ability to repay the loan. 

In additional to a regular home loan, however, you will most likely be required to submit your building contract, house plans, and council permits. You may also need to include evidence of applicable insurance i.e. public liability and/or builder’s insurance. 

Your lender could also require confirmation of the work having been completed at each stage of construction. This is usually an invoice from the builder requesting payment. You will most likely need to complete a Drawdown Request at each stage of construction, which tells the bank it’s time to drawdown funds from the loan to pay your builder. 

1. Proof of your income

Lenders need to know you can service a loan and will require evidence of your income. Two or three recent payslips will satisfy most lenders of your income and your ability to make repayments. 

2. Proof of your finances

Lenders need to know about your financial situation before they consider you for a loan. They will require bank statements, superannuation statements, and any other information that provides evidence of your expenses, assets, and liabilities. 

3. Proof of your construction

Lenders need to know they are giving you a loan for the right reasons. They usually require evidence of your building plans, construction timelines, and council approvals. They may also request proof of your builder’s qualifications and their licensing details. 

4. Your deposit

Most lenders require a deposit of around 5% of the projected value of your property on completion. However, when construction is complete, you will most likely revert to a typical mortgage. This could mean you need a deposit of 20% or more to avoid additional costs for Lenders Mortgage Insurance (LMI). 

5. A good credit rating

Your credit history can have a significant impact on your suitability to obtain any type of finance. A history of borrowing and repaying money responsibly can help boost your credit rating, making you a more attractive proposition to lenders. 

A construction loan gives you access to money progressively as you complete the various stages of your build. The beauty of this type of loan is that you only pay interest on the funds drawn during each stage of construction. For example: 

• When your land settles, you only pay interest on the cost of the land 
• Once the slab goes down, you might pay a further 20% of the total mortgage cost 
• Once the bricks go up, you could pay another 20% of the total mortgage cost 
• And so on until construction is complete.