Building / Construction Home loan.
A construction loan is a specific type of mortgage designed for people wanting to build a new home or renovate an existing home; while a traditional home loan releases the full funds for your property purchase at settlement.
Construction loans aren’t set up in quite the same way as a regular mortgage. Instead, the lender considers the total amount you need to borrow and will release sufficient funds for the land settlement.
The lender holds the construction funds and pays the builder directly as the construction progresses throughout each stage as specified on the contract. These payments are called progress draws.
Your progress payment schedule will typically have 6 progress milestones during the construction period.
The six steps of construction
Stage 1 Deposit: After the land settles the builder will issue an invoice for 5% of total construction costs.
Stage 2 Base/Slab: This stage also includes site cutting and preparation, as well as running initial plumbing into trenches and pouring the slab
Stage 3 Frame: The building frame is finished when the wall frames, roof frames and all tie downs and bracing are complete.
Stage 4 Enclosed/Lock up: The next stage involves works being completed such as all the brickwork, roofing and electrical fittings completed. The windows, doors and insulation are fitted, and the property becomes physically lockable.
Stage 5 Fixing: This next stage is when the interior of the property is installed. This involves such things as internal lining, architraves, cornice, skirting, doors to rooms, shower trays, wet area tiling, built-in cabinets and built-in cupboards of the building are fitted and fixed. Plumbing and electrical are completed, and gutters and downpipes installed. The Kitchen and bathrooms are generally fully installed as well.
Stage 6 Practical completion: The final stage of construction usually includes painting the home inside and out, and adding those finishing touches, such as installing shower screens, towel rails and walk-in robes. The lender will also arrange a final inspection prior to releasing the final payment.
While progress draws are being made, most lenders will only expect you to pay the interest due on the amount that has been drawn. Your full principal and interest payments won’t begin until after the handover has taken place and you have received the keys to your new home.