Construction Loans

Let Zanda Wealth Mortgage Brokers help build or renovate your dream home.

We’ll set you up with financial protection and reduced interest for your home construction project.

What are Construction Loans and How Do They Work?

When you think of home loans, a construction loan is not the first loan that comes to mind.

And quite frankly, it should be as there are many advantages to a construction loan in comparison to other loans. Construction Loans are typically offered to borrowers building a house upon a plot of land that they own.

They are also offered to borrowers who are doing renovations to their home.

Construction loans differ from regular home loans in the fact that with construction loans, you get portions of the money at a time versus everything in one go with a regular home loan.

This is quite similar to the construction industry as contractors are paid as they reach certain milestones on the project, thus this is how construction loans are paid out to you upon approval.

The differences and structure of construction loans require a trustworthy and accomplished mortgage broker who can look out for you. At Zanda Wealth Mortgage Brokers, we have many years of experience helping clients reach their home ownership goals with successful financing.

Zanda Wealth Mortgage Brokers Can Guide You Through the Construction Loan Process

With us….

You don’t get gouged with high interest rates during construction

You don’t run out of money before completion of your construction project

You don’t go through the long and tedious process of getting the loan
We can….

Pair you up with low-deposit loans to facilitate the start of the project

Find the lowest borrowing rates for your construction loan

Hold your hand throughout the process with a seasoned and qualified broker helping you along the way

Understanding the Progress Payment Structure For Construction Loans

Progress payments (or draw-downs) are given to the borrower as the construction progresses along. This is vastly different from the usual home loan process of “borrower seeks a loan, borrower receives the entire amount upon approval”. A deposit (or down payment) must be made to pay for the initial material costs of starting the construction project.

After the deposit, there are five points along the construction progress where draw-downs to you are made by the lender:

Point 1: Base (or Slab Down)
Point 2: Frame
Point 3: Lock-Up
Point 4: Fit-Out (Roof)
Point 5: Lock Up (Completion)

Navigating the Stages of the Construction Process

The construction process follows a series of stages that helps to organise and streamline the building of your property.

These stages include:

  • Building Contact: Finalizing the agreement with your builder
  • Building Plan: Designing and planning the construction
  • Council Approval: Securing permission for the construction
  • Quotation: Finalizing the estimated costs for the construction

Financing Your Construction:

Choose Your Preferred Option

Option 1: Land purchase and independent builder

Choosing to purchase land and hiring an independent builder provides you with a high level of customisation for your construction project. You have complete freedom in selecting your plot and the builder you trust to realise your vision. This approach can be advantageous if you have a clear, specific idea about the design and features of your future home. Zanda Wealth Mortgage Brokers can help you secure a construction loan that matches your unique requirements, making the complex process of financing land purchase and independent builder projects more manageable and efficient.

Option 2: House & land package

A house and land package is a convenient, often cost-effective solution for those looking to streamline the home-building process. This option bundles the cost of the land and construction into a single deal, typically offered by a property developer or builder. It’s an attractive route for many as it simplifies the home-building process, offering pre-designed houses that meet the specifications of the new development. This all-inclusive approach can eliminate some uncertainties inherent in home construction, such as unforeseen expenses or construction delays. With Zanda Wealth Mortgage Broker’s assistance, you can navigate the financial intricacies of a house & land package, ensuring you secure the best loan terms to suit your needs.

Insights into Interest Rates for Construction Loans

How do interest rates on construction loans compare with traditional home loans?

While construction loan interest rates may initially seem higher than those of a traditional home loan, the structure of the loan can potentially lead to savings. Since you’re only charged interest on the amounts drawn down, you could pay less interest overall during the construction period. However, once the construction is complete and the loan converts to a traditional home loan, the rates would then align with those of regular home loans.

Factors affecting construction loan interest rates

Several factors influence the interest rates on your construction loan. These include the loan-to-value ratio (LVR), your credit score, the loan amount, and the construction period’s length. Other factors may include the prevailing market conditions, your employment status, and the overall risk profile of your project. Working with Zanda Wealth Mortgage Brokers, you can understand these factors better and secure a loan that meets your construction needs at competitive interest rates.

Advantages of Home Construction Loans

  • Control Over Construction Stages: Construction loans offer you the unique advantage of managing payments as per construction progress, ensuring funds are used efficiently.
  • Improved Cash Flow: By releasing funds in stages or ‘draw-downs,’ you only pay interest on the amount used, which can significantly improve cash flow during construction.
  • Lower Interest Rates: During the construction period, you’re typically charged interest only on the funds drawn down, potentially leading to lower interest costs.
  • Flexibility in Repayments: Construction loans often offer interest-only payments during the build, allowing flexibility in managing your finances.
  • Potential Savings on Stamp Duty: If you’re building a new home, you might only need to pay stamp duty on the land value rather than the entire property value, leading to considerable savings.
  • Protection Against Incomplete Work: Funds are only disbursed after each construction phase is satisfactorily completed, providing a safeguard against incomplete or substandard work.

Secure Your Construction Loan Today With the Help of Zanda Wealth Mortgage Brokers

Don’t let high-interest rates or funding shortfalls derail your construction project. At Zanda Wealth Mortgage Brokers, we secure low-deposit loans, negotiate the lowest borrowing rates, and ensure a smooth loan process. Let us guide you to a successful construction project.

construction Loans

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Frequently Asked Questions about Construction Loans

How do land and construction loans work?

Land and construction loans are generally split into two loans. One for purchasing the land and another to cover construction costs, each with its own set of repayment terms.

How do construction loans work for renovations?

Construction loans for renovations work similarly to those for new builds. Funds are disbursed in stages as milestones in the renovation process are reached, and the borrower pays interest on the drawn amounts.

What happens if construction costs exceed the loan amount?

If construction costs exceed the loan amount, you’ll need to cover the shortfall yourself. It’s essential to budget carefully and include a contingency plan when applying for a construction loan.

What are the eligibility criteria for a construction loan?

Eligibility criteria can vary between lenders, but generally include a good credit history, stable income, a detailed construction plan, and a licensed builder. Zanda Wealth Mortgage Brokers can help navigate these criteria and find a lender that suits your needs.
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