Construction Loans

Finance for construction loans is where many lenders differ in both interest rates and fees. The lender may or may not charge an application fee, however they will all charge progress draw(i) fees and often inspection fees will also apply. Some lenders also restrict the type of loan products available for construction loans or charge a higher interest rate during construction.

There are 2 types of construction finance —

1. Project builder – you engage a licensed project builder to complete the home. You enter into a fixed price building contract and the builder has a particular timeframe to complete the construction. You will need to provide BFS with a copy of the fixed price contract, plans and specifications, plus any variations to the contract in order to apply for finance.

2. Owner builder – as the owner of the property you decide to either construct the home yourself or act as a building supervisor and engage your own tradesmen. This is a specialised area of finance as there are many additional requirements for owner builder’s to obtain finance. Buurman Finance Solutions can advise you on the process and which lenders are more likely to grant approval. Owner builder’s will need substantial equity or a large cash deposit as the LVR (lending value ratio) is usually restricted to 60% of the value or cost.

Progress payments are made to the builder at each stage of construction. This way the builder is paid as work is completed rather than upfront or at completion. The progress draw fee charged by the lender is to cover the transfer costs of each payment to the builder.

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