If you're a South Australian public sector employee considering a house and land package, you've probably wondered about the financing side of things. Construction loans work differently from standard home loans, and understanding these differences can help you make informed decisions about your new build journey.
Understanding Construction Loans for House & Land Packages
Construction loans are specifically designed for new builds, including house and land packages. Unlike traditional mortgages where you receive the full loan amount upfront, construction loans use a progressive drawdown system. This means you only pay interest on the amount drawn down as your build progresses through various stages of the project.
When you're buying off the plan or purchasing a house and land package, the lender will typically require an 'as if complete' valuation. This helps determine the loan amount based on the projected finished value of your property.
How Progressive Payments Work
The progressive drawdown system operates through a Progressive Payment Schedule that aligns with construction milestones. Here's how it typically works:
• Land settlement: First payment covers the land purchase
• Foundation stage: Payment released when foundations are complete
• Frame stage: Funds released when the frame is erected
• Lock-up stage: Payment when walls and roof are complete
• Fixing stage: Funds for internal work like plumbing and electrical
• Completion: Final payment when the build is finished
Your registered builder will coordinate with various tradespeople including plumbers and electricians, and they'll manage progress payments to pay sub-contractors as work is completed.
Interest Rates and Repayment Options
During construction, most lenders offer interest-only repayment options. You'll only pay interest on the funds that have been drawn down, not the entire loan amount. This can significantly reduce your financial burden during the building phase.
Interest rates for construction loans can vary depending on the lender and your circumstances. As a mortgage broker specialising in the public service industry, we can access construction loan options from banks and lenders across Australia to find suitable rates for your situation.
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Book a chat with a Finance and Mortgage Brokers at Public Home Loans today.
The Application Process
Applying for a construction loan involves several key documents:
- Council plans and permits: Your approved building plans
- Fixed price contracts: Detailed contract with your builder
- Development application: If required by council
- Progressive Payment Schedule: Breakdown of payment stages
The streamlined application process typically takes longer than standard home loans due to the additional documentation required. Lenders need to assess both your financial capacity and the viability of the construction project.
Important Considerations
When planning your house and land package, consider these factors:
Location and Council Requirements
Research your ideal location thoroughly, including council restrictions and council regulations. Some areas may have specific building requirements that could affect your budget or timeline.
Timeline Requirements
Most construction loans require you to commence building within a set period from the Disclosure Date. This is typically 6-12 months, so it's important to make a plan and have all approvals in place.
Additional Costs
Be aware of Progressive Drawing Fees charged by some lenders for each drawdown. Also consider Out of Contract Items not included in your building contract, such as landscaping, driveways, or fencing.
Price Range Planning
Establish your price range early, considering both the land cost and construction costs. Remember to factor in stamp duty, legal fees, and other settlement costs.
Major Renovations vs New Builds
If you're considering whether to demolish existing property for a new build or undertake major home renovations, construction loans can cover both scenarios. However, the loan structure and requirements may differ. A home improvement loan might be more suitable for renovations, while a full construction loan works for new builds on suitable land.
Why Choose a Specialist Mortgage Broker
As a renovation mortgage broker with experience in construction finance, we understand the unique challenges faced by SA public sector employees. We can help you understand the various options available and guide you through the application process.
Construction loans require careful planning and coordination between multiple parties - from your builder and tradespeople to council and your lender. Having an experienced broker can help ensure all requirements are met and deadlines are adhered to.
Construction loans for house and land packages offer an excellent opportunity to build your dream home while managing cash flow effectively through the building process. The progressive payment structure and interest-only options during construction can make new builds more accessible than you might think.
Call one of our team or book an appointment at a time that works for you to discuss your construction loan options and take the first step towards your new home.
