If you are thinking of building your own home, you will need to be familiar with the ins and outs of construction loans.
Construction loans are just not as straightforward as simple home loans. There are additional decisions to be made about the structure of the loan, additional documentation is required and the funding is released in an entirely different way.
Any changes to the contract and plans can trigger a reassessment of the loan, so be as sure as you can be that the plans and contracts provided to the lender are final.Olympia Andronicos
In addition to documentation about your finances, income and identity, your application for a construction loan needs to include contracts or tenders for the construction, as well as the plans so that a valuation can be performed.
Further documentation will also be required before the first payment is made from the lender to the builder, including a schedule of the payments to be made (called progress payments or drawdowns), the builders' insurance details and the final plans that have been approved by the local council.
In most cases, your loan will be set up as interest-only during the construction and you only start to pay the principal and interest repayments once the home has been completed and the loan is fully drawn.
This assists in keeping repayments to a minimum at a time that you may also be paying rent.
The drawdown schedule is very important, as you don't start paying interest on each portion of the loan until it is paid to the builder - you, the lender and the builder need to be satisfied with the schedule. For the lender to make each payment to the builder, you will need to fill out a drawdown request form from your lender, and submit it to your builder.
The builder can then send the lender your form with an invoice for that part of the payment and, after the lender is satisfied that the work has been completed and is up to the standard expected in the valuation, the drawdown can be completed with a payment to the builder.
Any changes to the contract and plans can trigger a reassessment of the loan, so be as sure as you can be that the plans and contracts provided to the lender are final.
Any small variations that you make after that point you will need to have the funds to pay from your own pocket.
If you need the bank to fund those changes you would not commit to those changes until your loan has been reassessed and new loan amount approved by the bank.
Sit down with a finance broker who has the expertise to find you the construction loan that best suits your needs.