Funding From the Ground Up - Aussie Blog

A construction loan offers useful pluses when you?re building a home from scratch.

It?s always exciting to watch your new home being built, and along with choosing the right site, design and builder, it?s also important to consider the type of loan best suited to funding the project.

A traditional mortgage, which involves borrowing a lump sum of cash with interest charged on the full balance from day one, is ideal if you?re buying an established property however it?s not always suitable if you?re building a new home.

When you?re starting from scratch, a construction loan can offer significant benefits.

Build your loan with your home

Construction loans let you make a series of drawdowns at various stages of your home?s construction. This typically starts with the purchase of land following by laying the concrete slab, completion of the frame/roof; lock-up; and final inspection.

Drip-feeding your loan this way offers several benefits. Your builder is only paid for completed work so you are protected against financial loss if any mishap occurs.

Your lender will also arrange for a valuer to make progress inspections at each drawdown, and this gives you the reassurance that an expert is double checking the quality of your builder?s workmanship.

Benefits for your budget

Drawing on the loan progressively is also easier on your budget than a traditional mortgage. You will only pay interest on the funds used, and repayments are typically interest-only at least until the building is complete. When you?re ready to move in, the loan normally reverts to a traditional variable or fixed rate mortgage.

Additional paperwork

Arranging a construction loan can involve a bit more paperwork. Lenders will normally want to see a formal contract from a licensed builder, council approved plans and evidence of builder?s insurance. ?However these are all requirements of most new builds.

In many respects your lender acts as a partner with you on the building project and this makes it essential to choose your lender with care. A competitive rate is important but it shouldn?t be the only factor you consider when choosing a construction loan and it makes sense to compare the options available through a range of lenders.

Source: http://blog.aussie.com.au/funding-ground-up/

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