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 builders 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 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.