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Looking to build your home? You might want a construction loan

If you are looking to build your dream home, and need money to do so, you won’t be able to get a traditional home loan. What you need is a construction loan.

A construction home loan is a home loan that is designed for people wanting to build their home instead of purchasing an existing one. As a result, it has a unique payment structure where you only borrow in stages as more progress is made on the construction. This varies from loan to loan, but the usual payment structure is based around the completion of five stages:

1. The Foundation, includes levelling, plumbing and waterproofing

2. The Frame, including brickwork, roofing and windows

3. Lockup includes external walls, windows and doors.

4. Fit-out, includes inside fittings and fixtures, plasterboards, cupboards, benches, plumbing, electricity and gutters.

5. Completion, this is the final amount that is paid out from the loan and usually includes the completion of contracted builders and equipment, plumbing, electricity and overall cleaning.

You only pay interest and repayments on the funds you have actually used so far. Therefore, if you have only completed the foundation so far, you only pay for the foundation and the frame once you start work on the frame. The full amount that you are able to borrow for the construction loan will partly be based on the final value of the completed construction.

It is possible to use a standard home loan for building a house. The disadvantage is that you will have to start paying interest and repayments for the entire loan from the first day.

A construction home loan may be a worthwhile option if you are considering building your new home instead of buying an existing one. However, they differ greatly from a standard home loan, so it is worthwhile talking to a mortgage broker to learn more.

If you would like to learn more about construction home loans, contact us today.


Disclaimer: This article provides general information only and may not reflect the publisher’s opinion. None of the authors, the publisher or their employees are liable for any inaccuracies, errors or omissions in the publication or any change to information in the publication. This publication or any part of it may be reproduced only with the publisher’s prior permission. It was prepared without taking into account your objectives, financial situation or needs. Please consult your financial adviser, broker or accountant before acting on information in this publication.



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