WHEN & WHY CONSULT A MORTGAGE BROKER?
Construction loans are different from regular home loans. Before you proceed with the construction or renovation of your home, be sure to talk to a mortgage broker who can assist you through the process.
Our broker will be able to give you valuable advice and explain things extensively, including what construction finance is and how it can benefit you.
INVOLVEMENT OF A QUALIFIED BUILDER:
It is essential to involve a qualified builder/ licensed general contractor in building or renovating your home, as financing institutions that allow you to act as your own general contractor are hard to find.
DETAILED RENOVATION SPECIFICATIONS:
This consists of floor plans and details of materials that are going to be used in renovating the home. It is a comprehensive checklist known as the blue book wherein every detail is assembled by builders.
ESTIMATE OF HOME VALUE BY APPRAISER:
In construction home loans, it is next to impossible to appraise something that is non-existent. As a result, a lender must have an appraiser to consider the blue book and specs of the house. The appraiser must also be asked to determine the value of the land where the home is being built on.
LARGE DOWN PAYMENT:
You need to pay a minimum amount of 20% as down payment for residential construction loans, but some lenders require as much as 25%. The payment ensures your investment in the project and that you won’t just walk away if things go wrong. The payment also acts as a protection for the bank or the lender in case the cost of construction for the house does not turn out to be worth as much as expected.
LOAN DOCUMENTS CHECKLIST
Your personal identification should amount to 100 points. A current Passport or Birth Certificate equals 70 points, while a driver’s licence contributes up to 40 points. If you are married, a copy of your Marriage Certificate will also be required. You can ask your mortgage broker for other types of identification to reach the necessary 100 points.
INCOME DETAILS IF SALARIED:
- Two most recent payslips from your employer mentioning the name of the company, payslip number and the year-to-date income figure
- The most recent group certificate from current employer
IF SELF EMPLOYED:
- Last two year’s personal and business tax returns
- ATO assessments
- Additional income details
Loan Documents Checklist
Other types of documentation that can be used for construction loans in Melbourne include:
- Photocopy of a credible builder’s fixed price tender consisting of all specifications
- Photocopy of plans approved by Council
- Rent income statements
- Proof of share dividends or interest earned
- Centrelink letter which confirms family tax benefits
- Centrelink letter which confirms permanent government pensions
- Private pension group certificate, or a statement
- Proof of any other regular ongoing income
Frequently Asked Questions
Can you get fixed rates on construction loans?
Yes, it’s possible to get fixed rates on construction loans, but it’s offered by very few lenders. Mostly lenders offer fixed rates on the land portion or land loan only. A fixed rate offers a stable interest rate that doesn’t change during the term of the loan, giving borrowers predictability and budgeting certainty. However, it’s important to note that fixed-rate construction loans may have higher interest rates than variable rate loans and stricter qualification requirements. Additionally, fixed-rate construction loans may have penalties if the borrower pays off the loan early.
What do you need to know about construction loans?
Construction loans are special loans used to finance the construction of a new home or renovation of an existing property. They typically have higher interest rates than traditional mortgages and require a larger down payment. These loans are structured differently from standard mortgages, with funds being disbursed in stages as the construction progresses. Lenders typically require detailed project plans and budgets as well as regular inspections to ensure that the project is progressing as planned.
Do you need a mortgage on construction loans?
Yes, a construction loan typically requires a mortgage to secure the loan and ensure repayment. The mortgage is used to provide collateral for the loan so that, in the event the borrower defaults on the loan, the lender can foreclose on the property and sell it to recoup their losses.
How do new construction loans work?
Construction loans are used to finance the construction of a new home. The amount is usually based on the estimated value of the completed project and the funds are paid out in stages as construction progresses. Borrowers typically make interest-only payments during the construction phase, after which the loan is converted into a traditional mortgage. Borrowers will need to provide detailed plans and cost estimates for the project in addition to making a down payment. The lender will also require regular inspections to ensure construction is progressing according to plan.