We think purchasing and lending got way too complicated somewhere along the way. We are here to help make the lending process better by providing you with REAL solutions. We say it how is, in your terms and on your terms.
Building and renovating your own home can be a fantastic experience but it can also be a long and expensive process. Most people are unable to pay for the cost of home construction up front, and getting a standard mortgage can be a tricky process.
Whilst there are many loans currently available for construction, major renovations or purchase of vacant land, they are complicated and without previous experience, it is recommended that you use an expert to help guide you through the process.
As the name suggests, a construction loan will allow you to build your new home. If you have a specific building in mind, this is a great loan option for you.
A construction loan can be used to buy for the vacant land and then fund the construction. The amount to be borrowed will depend on the total cost of the build and it will be provided in progress payments. Progress payments are when the lender release funds directly to the builder as different phases of the construction progress. With each draw, your repayment will increase.
When you apply for this loan, one of the many documents you will need to provide the lender with is a Fixed Price Contract which will show the total construction costs. The lender will then use this value and the land value to establish a security value. They will use this value to confirm their loan amount.
This type of loan is not like a regular mortgage wherein the entire loan is funded at settlement. This loan is released via progress payments. The lender will assist with your land purchase (or refinance) and then assist with construction. As the builder completes each phase, the lender will then release part of your loan to the builder. It’s important to understand that each lender has different progress payments structures and criteria but normally progress payment will look the below:
These loans will ensure that the loan will only pay for the construction that is being done.
It is a great way to ensure that your funds are available to complete construction.
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