Why Your Project Needs to be Financed with a Construction Home Loan
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Why Your Project Needs to be Financed with a Construction Home Loan

ByDarin Hindmarsh

Why Your Project Needs to be Financed with a Construction Home Loan The great Australian dream of owning your own home is an extremely strong part of our culture. Many people plan and save for their homes for years only to find that they can’t find the house that is exactly what they are searching for. So many people decide to build their own home or do a major renovation and in order to do that they very often start to research construction home loans. A construction home loan is designed to provide the funds for a brand new home, although sometimes a major renovation can also qualify. The main feature of construction home loans is that the total money that is borrowed is paid in chunks and this is usually at the end of each stage of construction. An example of how construction home loans are often paid out would be the first payment might be made once the foundations of the property have been laid. The next stage might be once the walls are in and windows fitted. The next stage of payment might be when the property is at lock up. These stages can vary depending on the details of the particular loan you are considering taking out. A good broker who specialises in the area of construction home loans and/or owner builder loans can often save you money and time by helping to guide you through the details of different offerings. An experienced broker will also be able to show you ways in which you can demonstrate the high probability of success of your project. This is important as statisticall,y construction home loans have a higher level of default than standard home loans. This means that some banks and other financial institutions are reluctant to sign off on construction home loans and you need to make sure you make the argument for your project as compelling as possible. There are a number of advantages to using a construction home loan. The first of these is that it means that interest is only required to be paid on the money that has actually been borrowed and therefore can save money.  Another advantage of a construction home loans is that you can pay only for the land portion prior to the beginning of construction – again this can be a significant cost saving. Another item that many people consider to be an important advantage of a construction home loan is that once the construction process has been completed and you have moved into your new home, the construction home loan will revert to a standard variable rate home loan. In the small print of most construction home loans is the ability to take several years to complete construction after the date of settlement. There is also often the ability to take the total cost of the construction loan and divide it between 2 accounts. This can allow you to identify transactions that are personal and transactions that are investments. There are also several disadvantages with construction home loans. One of these disadvantages is that in many cases the loan to value ratio is quite low. This can often mean that people who want this sort of loan have to have significant amounts of their own money to put into the project. Another limitation of construction home loans is that funds are usually released at pre-arranged stages. Before funds are released, there is often a requirement that the project is inspected and this can slow down the release of funds. Another limitation of construction home loans is that in many cases, plans that have been approved bythe council as well as a fixed price tender is often required by the banks when the application is first made. This can mean that you are locked into the project right from the start and there may not be the ability to make significant changes throughout the process.

Are building loans the right choice for you?
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Are building loans the right choice for you?

ByDarin Hindmarsh

Are building loans the right choice for you? Although it isn’t the right choice for everyone, building a new home or renovating an existing home using a building loan can mean that you end up with exactly the home you want. No longer do you have to compromise and put up with the end results of someone else’ decisions. It is up to you to decide what level of finish you want and exactly what design features are important to you. From a financial point of view, a building loan differs from a standard home loan in several ways. For starters, in order to minimize the interest you pay, most building loans are based on a system whereby the amount you borrow is drawn down as you need it. This means you are not paying interest on money that you are not yet using. Sometimes building loans can be set up as a line of credit so that money can be drawn down as needed. These types of building loans can have separate sub accounts that can be used for your different needs. For example one of them could be used for your building project, one of them could be for your household needs and one of them could be for investments. As anyone who has already been involved in construction knows, building loans are not always easy to obtain. It is a good idea to start looking for a building or construction loan when you are planning to do the work within the next year or so. Any longer than that and the loan may not still be valid when the time comes to use it and any shorter and time constraints can add extra pressure to the process. The first step in applying for a building loan is to find out whether you are eligible for any grants supplied by the government. You can check this out by contacting the relevant body.You will need to contribute some of your own money to the project, although how much you will be required to put in up front depends on the specifics of the building loan you are applying for. When you are ready to apply for your building loan you will need to supply a number of documents. These documents will include a copy of the builder’s insurance policy and a copy of the building contract you. You may also need to supply a copy of any council approved plans and a copy of your builders’ licence. When the building loan has been approved and construction is underway, you will need to supply an invoice from the builder which may have to have been authorized by all the people who are responsible for the loan. Don’t forget that there may sometimes be a delay in payment as some financial institutions will require an inspection before they issue funds. This is just to make sure that all the work has been completed. Once the building has been completed, you may no longer want a building or construction loan so it is important that the loan you take out is flexible enough to be changed over once construction has been completed. The building loan is essential for the actual building process but after that, you would probably prefer it to change over to a standard home loan so that you can start to pay it off as quickly as possible. Be aware that there are sometimes be a fee involved in changing the type of loan type at this stage. There are many different ways you can achieve the dream home you wish for. For some people, it is easy to find a home that has already been built that is perfect for them. For other people, the best way of getting the right home is to take out a building loan and build it yourself – just the way you want it.