Five Stages of Home Construction and How They Affect Your Construction Loan

By: Rakesh Gupta59 comments

It is wonderful to design and build your home the way you always imagined it to be. But, it can also be long and expensive–that’s why, many people are unable to pay the construction cost in advance. Here, a normal mortgage may not meet your needs, and hence, construction loan comes into the picture.

However, most lenders are quite particular about construction loans as you are asking money for something that does not exist yet. Moreover, there is less certainty of the property attracting a good resale price after completion.

If anything goes wrong, like the builder doing a poor job or a depreciation in the property’s value, then it would be a bad investment for the bank. The property would not be just as worth as much as the amount lent.

Five Stages of Home Construction and How They Affect Your Construction Loan

How A Construction Loan Works

A construction loan is meant for people building a new house from ground up instead of settling in a ready-to-move house. Hence, for a construction loan you first need to own a piece of land where the construction will commence within an agreed period. Before loan’s approval, you need to deposit a security amount (about 20% of the total construction amount) to the lender. However, you may find that most lenders are ready to lend up to 95% of the total amount but, you would still need the Lenders Mortgage Insurance.

While obtaining a construction loan, you should know that the value at which most lenders estimate the complete package is based on the value of the land as well as the cost of the building materials. For instance, if a land was purchased for $150,000, and fixed price building contract of $180,000, then the the total value of the loan would be $330,000.

A Summary Of The Loan Breakdown

Ask your builder for an estimate before signing the fixed price building contract for construction. There might be some variations later, but fixed price building contract will establish most of the construction costs and fixed price building contract will explain the 5 progress payments’ schedule, especially if the construction cost is under $500,000.

Mostly, the builder and lender follow the HIA (Housing Industry of Association) or MBA (Master Builders Australia) prescribed progress payment plan. So, it includes a clear outline of each stage of construction on the building contract along with the estimated time of completion.

It is standard for a borrower to pay the lender only the interest that is due on the amount drawn. The common period allowed for finishing construction is up to two years.

During the course of construction, your home will be inspected periodically for code compliance and other quality checks at critical points. The idea is to catch as many potential issues as possible before construction is finished. However, there may remain some issues that may not surface until you’ve lived in the home for a period of time.

The Stages of Construction

Here are the five stages of home construction and process of inspection that determine the amount lended, considering the lender agrees to 5% of the amount as security deposit.

Construction Stage #1 – SLAB

At this stage, the builder works with site cutting and initial plumbing. The work begins on a site that devoid of any gravel, debris or plantation. It is levelled as a guide for the foundation with holes and trenches dug up and footings being installed.

If the foundation is a slab-on-grade, then the footings are scooped out, formed and then concrete is poured into the holes and trenches. Concrete then needs some days to cure and construction halts for that period. After that, plumbing and waterproofing is taken care of.

Construction stage 1
Image Source: newhomesource.com

Inspection #1

The focus of first inspection is the slab and after its successful inspection, 10% of the construction money is given out.

The inspector will check whether the plumbing and workmanship are of acceptable for Australian standards. Your inspector will carefully evaluate any irregularities and inform you if they are of great significance.

Construction Stage #2 – Frame and Brickwork

Builders will put up the frame of the house which exhibits the progress in the partial brickwork, roof, trusses and windows.

Construction Stage 2- Frame and Brickwork

Inspection #2

15% of the total construction loan amount is turned over during this stage. The building inspector confirms whether the roof’s framing conforms to the most recent plans and specifications and checks the wall placement and dimensions of windows and doors for their specifications mentioned in the plan.

Construction Stage #3 – Lockup

The Lockup stage of construction is named so because this is when the doors and windows become lockable. Construction sites attract thieves–which is why it is best not to install any appliances or fittings before installation of locks.

Inspection #3

You should confirm that all the agreed lockup terms in the contract have been met before making any payments as this is the most significant percentage, 35%, of the entire process.

The examination at this point ensures that the general workmanship is appropriate. This includes proper installation of bricklaying/weatherboard, and the roof covering.

Additionally, the inspector may also look at services like plumbing, gas, and electrical fitting to gauge whether they are located in appropriate places and are installed according to building standards.

Construction Stage #4 – Second Fixing

Here, the builder starts-off with installation of the plasterboards, part-installation of cupboards, and benches. All plumbing and electrical works are completed, tiles are integrated, and the gutters and downpipes are installed.

construction stage 4 compiled
Image Source: newhomesource.com

Inspection #4

The fourth stage of construction is when the next 20% of the contract amount is paid off. Inspection involves checking all the rough framing, plumbing, electrical, and mechanical systems to see whether they comply with all the building codes in the area and are in good working condition.

Construction Stage #5 – Completion

By this stage, the builder starts giving finishing touches to everything present and installed in the house, and doing the final electrical and plumbing fit-offs, removal of final rubbish and cleaning of the house.

Construction final stage

Final Inspection

The last inspection is performed to ensure that the house has been completed to the same degree at which it was initially appraised before handing over the keys to the new owners. An amount equalling 15% of the total contract is paid at this stage.

The final inspection is also required to convert the construction loan into a permanent mortgage. A building-code official completes a final inspection and issues a certificate of occupancy. If any defects are found during this inspection, a follow-up inspection may be scheduled to ensure that they have been corrected.

The owners and the builder/ builder’s representative may also do a final walkthrough of the house to ensure that the owners are satisfied with the construction and final finishes.

Frequently Asked Questions, Answered

The Fixed Price Contract

You should know that during most builders try offering ‘Fixed Price’ contracts, in case the building costs go up. So once this is fixed, the cost of construction of your new home will not change.

There are some conditions and items that may not be a part of the Fixed Price Contract. So, ask the builder to clarify the definition of ‘Fixed Price’ or ‘Site Costs’. For instance, any work done outside the land boundaries, any additional items not included in the building contract, or additional council/estate requirements and so on.

If your contract consists the mention of ‘To Be Announced (TBA)’ or ‘Not Consolidated (NC)’, then ask for verification. These are mostly a builder’s way of saying that the price of your house might be fixed, but there might be things that can change the cost. These costs are usually not guaranteed.

That is why you should be wary of any differences added by the builder to the final costs. These can also involve changes in the footings/foundation price after soil testing has been conducted.

Upgrade Costs

Your building contract will include an allocation to cover other things like an upgrade during the color selection process, tiles, roofing, bricks and much more. However, if you spend more than you intended, your costs will go up, which you will have to cover out of your pocket.

Though most lenders are quite understanding about this, they will expect that all the final variations have been received by the time your finance approval is underway. If there are any changes in pricing after this time then you need to inform the bank to account for the extra, or you’ll have to shell that amount from your own pocket.

If you feel that you would require more more funds for other home improvements such as landscaping, then you can also opt for re-evaluation by your lender upon completion.

Advance Payments to The Builder

In case you are worried that the builders need to be paid before the set phases are done, you can consider obtaining a very small line of credit as part of the loan.

Keep in mind that when valuing the security property with owner builders, the actual completed value of the home is rarely taken into account. The lender instead looks closely at the quotes provided to form the estimated cost of materials and labour required to complete the construction. This is used as a ‘to be erected’, or TBE, valuation amount instead.

Conclusion

Construction loans are suitable for making major renovations to your existing home or a property that you might have just bought. The advantage of this loan type is that you are able to pay construction costs as and when they fall due. Most banks will also allow you to make extra payments off your mortgage while your loan is still in the progress draws stage. But, always check whether your bank will allow this.

Building your own home can mean you get everything exactly the way you want it and with a construction loan you remain in control of the building process at every stage.

Handy Tips

  • Owners may choose to appoint an external independent building surveyor to ensure construction quality and personal satisfaction.
  • It is important to have a clear understanding of what is and isn’t included in the building contract.
  • It always helps to finalise your selection of items and colours to have a smooth and swift building progress.
  • It’s good to know your and your builder’s legal rights to understand where you stand in certain situations.
  • Builders have the right to charge up to 20% of margin on items that are outside the building contract. Keep note that items requested outside the contract cause additional work for the builder.

Related post

Comments

  • Anonymous

    January 19, 2016

    I’ve been having issues with my Windows hosting. It has set me back quite a bit while making the next list. This is the current list that I have. I should add another list in less than a week. I’ll let you all know when the next list is ready. Thank you for your patience.

    https://www.freeautoapprovelist.com/free-auto-approve-list-8-9-2018/

  • Anonymous

    January 19, 2016

    Useful Information. Got a chance to learn some new things. Keep up the good work.

    http://myrelist.com/members/shell39budget/activity/4181733/

  • Anonymous

    January 19, 2016

    Good point! Interesting tips over this website. It is pretty worth enough for me. In my view, if all webmasters and bloggers made good content as you did, the internet will be a lot more useful than ever before. I couldn’t resist commenting. I’ve spent 2 hours trying to find such informations. I’ll also share it with a couple of friends interested in it. I’ve just bookmarked this website. Finished with the task done, I will visit some live gay cams. Thank you very much!! Greetings from Los Angeles!

    virtual-cams.webnode.cat

  • Anonymous

    January 19, 2016

    Very Nice post . Yes this this the right way for blog commenting . We should not do spamming through blog commenting . We should address the right information .

    http://www.visevi.it/index.php?option=com_k2&view=itemlist&task=user&id=707954

  • Anonymous

    January 19, 2016

    Simple and basic!! Interesting article over here. It is pretty worth enough for me. In my view, if all webmasters and bloggers made good content as you did, the internet will be much more useful than ever before. I couldn’t refrain from commenting. I’ve spent some time trying to find such informations. I’ll also share it with some friends interested in it. I have just bookmarked this website. Now with the work done, I going to enjoy some online sexy men cams. Thanks!! Greetings from San Francisco!

    virtual-cams.webnode.cat

  • Anonymous

    January 19, 2016

    I loved as much as you’ll receive carried out right here. The sketch is attractive, your authored subject matter stylish. nonetheless, you command get got an impatience over that you wish be delivering the following. unwell unquestionably come more formerly again as exactly the same nearly a lot often inside case you shield this hike.

  • Anonymous

    January 19, 2016

    Hey there I am so thrilled I found your web site, I really found you by error, while I was searching on Google for something else, Anyways I am here now and would just like to say many thanks for a marvelous post and a all round exciting blog (I also love the theme/design), I don’t have time to read it all at the minute but I have book-marked it and also included your RSS feeds, so when I have time I will be back to read a great deal more, Please do keep up the great job.

  • Anonymous

    January 19, 2016

    It means i create a database using mysql and create a website using joomla so when i click a link from the web i can directly retrieve the data from mysql server.

    https://pornhubfree1987.tumblr.com

  • Anonymous

    January 19, 2016

    Cool one! Interesting information over this web. It’s pretty worth enough for me. In my opinion, if all web owners and bloggers made good content as you did, the internet will be much more useful than ever before.| I couldn’t refrain from commenting. I ‘ve spent 1 hour trying to find such infos. I will also share it with some friends interested in it. I’ve just bookmarked this website. Now with the job done, I going to find some model homo cams. Merci!!Greetings from Atlanta!

    virtual-cams.webnode.cat

  • Anonymous

    January 19, 2016

    I’m sorry it has taken me so long to make a new list. There were some problems making this list. I also was away from the computer for awhile. I hope you all have had a good month. It’s been almost a month since the last update. The next list won’t take that long to make. At least I hope it won’t.

    http://www.eskisehirhentbol.com/

  • Anonymous

    January 19, 2016

    I loved your blog article.Thanks Again. Fantastic.

    http://www.jakobstube.com/

  • Anonymous

    January 19, 2016

    I’ve just added a fresh new list. This is by far the biggest list to date. I hope you all are having a great week. Take care and happy link building.

    http://www.videopros1.com/

  • Anonymous

    January 19, 2016

    Cool! Interesting informations over here. It is pretty worth enough for me. In my view, if all web owners and bloggers made good content as you did, the internet will be a lot more useful than ever before.| I could not resist commenting. I ‘ve spent some hours searching for such article. I’ll also share it with a couple of friends interested in it. I’ve just bookmarked this web. Now with the work done, I will watch some online homo cams. Thank you!!Greetings from San Francisco!

    virtual-cams.webnode.cat

  • Anonymous

    January 19, 2016

    Good one! Interesting article over this website. It is pretty worth enough for me. In my view, if all web owners and bloggers made good content as you did, the web will be much more useful than ever before.| I couldn’t refrain from commenting. I have spent 1 hour searching for such informations. I will also share it with a couple of friends interested in it. I have just bookmarked this web. Finished with the search done, I will watch some model gay webcams. Thank you very much!!Greetings from San Francisco!

    virtual-cams.webnode.cat

  • Anonymous

    January 19, 2016

    I’ve just added a fresh new list. This is by far the biggest list to date. I hope you all are having a great week. Take care and happy link building.

    http://www.hafif.net

  • Anonymous

    January 19, 2016

    sen harikasın.

    http://www.kasim.net

  • Anonymous

    January 19, 2016
  • Anonymous

    January 19, 2016

    Excellent website. Lots of helpful information here. I’m sending it to some buddies ans also sharing in delicious. And certainly, thanks to your effort!

  • Anonymous

    January 19, 2016

    Have you ever thought about creating an e-book or guest authoring on other
    blogs? I have a blog based upon on the same ideas you discuss and would really like to have
    you share some stories/information. I know my
    visitors would enjoy your work. If you’re even remotely interested,
    feel free to shoot me an e-mail.

    productos bancarios

  • Anonymous

    January 19, 2016

    You’re totally correct and I trust you. If you want, we might also talk around firestarter android, one thing that intrigues me. Your site is definitely impressive, cheers!

    https://www.instasaver.org/

  • Anonymous

    January 19, 2016

    最快速的日間上妝步驟。省下三倍的時間: 色彩校正、保濕與防曬一次完成。

    https://skinac.com/tag/面膜重點修護

  • Anonymous

    January 19, 2016

    I know this web page provides quality based articles or reviews and other material, is there any other website which offers such data in quality?

  • Anonymous

    January 19, 2016

    I am not sure where you are getting your info, but great topic. I needs to spend some time learning more or understanding more. Thanks for excellent information I was looking for this information for my mission.

    http://vansu.net/

  • Anonymous

    January 19, 2016
  • Anonymous

    January 19, 2016

    IELLIOS是由歐盟資助倫敦大學細胞重建研究所研究. 採用諾貝爾生理醫學獎科技 , 透過”納米能量電流” 以最親膚與迅速導入的方式 , 利用電腦化系統去令皮膚再生 , 令皮膚組織在無創傷的情況下自然更新及收緊 . 這治療是無創無痛的 . 完成治療後亦沒有傷口 . 我們是香港第一引入IELLIOS的機構 , 醫生會根據客人不同情況去為你設計不同的組合 .在外國IELLIOS受到很多荷里活明星, 歌手以至政客的追棒 , Madonna的facialist kate somer -field就常用IELLIOS為她護理肌膚 , 令52歲的她肌膚輪廓均保持於30歲的狀態. IELLIOS的訊號技術,採用心臟起博起原理,活躍無法正常運作的心臟細胞。訊號技術可活化及修復愛損皮膚,透過傳送訊號,激活靜止的細胞。IELLIOS的訊號技術給予細胞指令,引發細胞再次生長,令肌膚重回年輕。

    http://cosmedicbook.com/treatments/info/ION-MAGNUM

  • Anonymous

    January 19, 2016

    Google Adwords 關鍵字廣告

    http://www.bizonrails.com/

  • Anonymous

    January 19, 2016

    Greetings from Idaho! I’m bored at work so I decided to check out your blog on my iphone during lunch break. I enjoy the knowledge you provide here and can’t wait to take a look when I get home. I’m shocked at how quick your blog loaded on my phone .. I’m not even using WIFI, just 3G .. Anyways, fantastic blog!|

    https://lichngaytot.com/

  • Anonymous

    January 19, 2016

    不需要照鏡子補妝,一系列絕不失手的美麗唇膏可以混搭、疊擦。

    https://skinac.com/tag/亮麗柔滑打底乳液

  • Anonymous

    January 19, 2016

    提供多種樓宇按揭計劃,切合您的理財需要,立即比較並找出合適按揭方案。

    http://wealthlink.hk/?page_id=127

  • Anonymous

    January 19, 2016

    I think everything typed was very logical. But, think on this, suppose you were to write a awesome headline? I ain’t suggesting your information isn’t good, however what if you added something to possibly get people’s attention? I mean BLOG_TITLE is a little boring. You could glance at Yahoo’s home page and note how they create news titles to get people to click. You might add a video or a related picture or two to grab readers excited about everything’ve got to say. Just my opinion, it could make your posts a little livelier.|

    https://xemtuvi.mobi/

  • Anonymous

    January 19, 2016

    There are some interesting points in time in this article but I don?t know if I see all of them center to heart. There is some validity but I will take hold opinion until I look into it further. Good article , thanks and we want more! Added to FeedBurner as well

  • Anonymous

    January 19, 2016

    Great blog you have got here.. It’s hard to find excellent writing like yours these days. I really appreciate individuals like you! Take care!!

  • Anonymous

    January 19, 2016

    Say, you got a nice blog post.Thanks Again.

    http://www.kasim.net/

  • Anonymous

    January 19, 2016

    通過水光療程抑制黑色素細胞生長的成分注射到真皮層,減少黑色素形成,淡化黑斑色素沉澱,從而達到美白祛斑的效果 療程特色 :可配搭多元化產品來量身訂做不同療​​程計算機化規格,操作方便,容易控制可調節進針深度,精準注射於目標的肌膚層 每針的注射劑量相等,達到均勻注射 一次平均5點注射,可縮短療程時間 採用31號細針頭,幾乎看不到入針點 降低疼痛、瘀血、腫脹及不適感 使用靈活度高,可複合式搭配針劑,量身訂製療程

    http://cosmedicbook.com/treatments/info/Co2激光脫癦

  • Anonymous

    January 19, 2016

    彷彿溶入肌膚般地滲透,賦予飽滿的濕潤,打造緊緻有張力的白皙透亮感。

    https://skinac.com/tag/胸部

  • Anonymous

    January 19, 2016

    When was this posted?

    http://forexfbi.com

  • Anonymous

    January 19, 2016

    A big thank you for your blog article.Thanks Again. Want more.

    http://www.nelfr.com

  • Anonymous

    January 19, 2016

    I appreciate you sharing this blog article.Really thank you! Keep writing.

    http://www.kentoto.net/

  • Anonymous

    January 19, 2016

    I really like and appreciate your blog article. Awesome.

    http://www.eskisehirdebiryer.com/

  • Anonymous

    January 19, 2016

    Yeah bookmaking this wasn’t a risky decision outstanding post! .

    http://www.eskisehirkalp.com/

  • Anonymous

    January 19, 2016

    Your stuff is incredibly helpful.

    http://www.theamazing.net

  • Anonymous

    January 19, 2016

    Say, you got a nice blog post.Thanks Again.

    http://www.ysbsq.com

  • Anonymous

    January 19, 2016
  • Anonymous

    January 19, 2016

    Mission accomplished. It’s sleek, friend.

    http://www.expressfb.com/

  • Anonymous

    January 19, 2016

    I cannot thank you enough for the blog post.Really looking forward to read more. Awesome.

    http://bursaescortx.net/

  • custom chalkboard menu designs

    January 19, 2016

    …easy to use chalkboard megabundle

    […]Have you ever wanted to be able to design any chalkboard you can imagine in just a few minutes? Now you can do all that and more. Download the awesome Chalkboard Megabundle Library here: http://bit.ly/chalkboard_megabundle […]

  • Anonymous

    January 19, 2016

    通過水光療程抑制黑色素細胞生長的成分注射到真皮層,減少黑色素形成,淡化黑斑色素沉澱,從而達到美白祛斑的效果 療程特色 :可配搭多元化產品來量身訂做不同療​​程計算機化規格,操作方便,容易控制可調節進針深度,精準注射於目標的肌膚層 每針的注射劑量相等,達到均勻注射 一次平均5點注射,可縮短療程時間 採用31號細針頭,幾乎看不到入針點 降低疼痛、瘀血、腫脹及不適感 使用靈活度高,可複合式搭配針劑,量身訂製療程

    http://cosmedicbook.com/treatments/info/DR-CYJ-髮胜肽健髮療程

  • Anonymous

    January 19, 2016

    Say, you got a nice blog post.Thanks Again.

    http://www.fufucan.com/

  • Anonymous

    January 19, 2016

    I appreciate you sharing this blog article. Much obliged.

    http://www.chocopictures.com

  • Anonymous

    January 19, 2016

    Very nice article, just what I wanted to find.|

    https://phongthuyso.vn/

  • Anonymous

    January 19, 2016

    柔軟角質層、徹底清潔肌膚細部深層髒污及張力流失因素。恢復澎潤活力Q彈肌、洗出極淨光澤的卸妝乳。

    https://skinac.com/tag/鼻梁

  • Anonymous

    January 19, 2016

    A big thank you for your blog article.Thanks Again. Want more.

    http://sistemantalya.com/

  • Anonymous

    January 19, 2016

    Say, you got a nice blog post.Thanks Again.

    http://www.hotelsclubantalya.com/

  • Anonymous

    January 19, 2016

    淨痘效果可媲美領導級處方外用藥。

    https://skinac.com/tag/微量元素

  • Anonymous

    January 19, 2016

    Thank you for your blog article.Really looking forward to read more. Will read on…

    http://www.cnsmee.com/

  • Anonymous

    January 19, 2016

    【敗家】秋轉冬的B2B四款外套穿搭♥♥非買不可的平價韓國Ollie雪靴 @ B2B崔咪TRAMY :: 痞客邦 :: 最近天氣有點變涼咧~~((歡呼!! 我和姊妹的話題都是, 冬天到底要不要來啊!!! 忽冷忽熱真的是很變態啊!!>””< 快點來快點來~~~

    https://cosmetic.wiki/tag/暗瘡

  • Anonymous

    January 19, 2016

    I cannot thank you enough for the post.Really looking forward to read more. Cool.

    http://www.antalyaescorts.com/

  • Anonymous

    January 19, 2016

    I needed to send you the bit of observation to help thank you the moment again over the extraordinary tricks you’ve contributed in this case. This has been certainly shockingly generous with people like you to make unhampered all a few people would’ve made available for an ebook to earn some profit for their own end, notably considering that you might have tried it if you ever desired. Those strategies in addition acted like the great way to be aware that other people online have a similar fervor really like my very own to see somewhat more regarding this problem. I am sure there are many more pleasant periods up front for individuals who read through your blog post.

Leave A Comment