Construction

Here are 10 tips to know when constructing your home:

Construction loans are structured slightly different to traditional home loans, the funds are released in stages to your builder corresponding to each major construction milestone. 

1. Interest only Repayments: During construction you are only required to pay interest on the amount that has been drawn down, not the approved home loan amount which may significantly reduce your repayments.
2. Detailed Plans & Inclusions: To secure a construction loan, you’ll need Council approved plans prior to the bank making payments to your builder, a fixed-price building contract and inclusions, sometimes referred to as Specifications.
3. Choose the Right Builder: Make sure your builder is licensed and insured. You will want to make sure your builder is a member of Master Builders or the Housing Industry Association (HIA).
4. Budget for more than you expect: Allow for extra costs that may not be included in the estimate your builder gives you. For instance, your builder is unlikely to include costs such as electrical, gas metres, window coverings and items such as landscaping and outdoor concreting, fences, gates, decking and letterbox. These are known as finishing costs and can end up costing you more than you budget for. You will also need to consider site costs which are the costs associated with preparing your site for construction, and you may also have to pay for planning application fees.
5. Understanding your Building Contract: Carefully read through the building contract with your builder to make sure you understand what you are paying for, and you’re not taken by surprise by what the construction costs cover and what they don’t cover. Make sure it includes a cooling off period and that it specifies a timeframe for completion of construction. Check that it includes detailed plans, warranty and insurance information and pay close attention to the payment schedule.
6. Know what you’re entitled to: If you’re building your first home, you could be entitled to a First Home Owner Grant (FHOG), dependent on the state or territory in which you live. To find out if you are eligible, check the website of the First Home Owner Grant. You may also be eligible for stamp duty concessions, click on the (LINK) to find out if you are eligible for your State.
7. Understand the Loan’s Structure: When you’re building a home, you will need a construction home loan to finance the process. A construction home loan is structured differently than a regular home loan in that the lender won’t release all the funds at once. The funds are released in periodical payments to your builder. These periodical payments are referred to as ‘progress draw’. The funds are paid out by your lender at the completion of each individual stage of construction.
8. Inspections Before Payments: Your lender will typically require an inspection at the initial (base) and final phase of construction to verify that the project has been executed correctly. This protects both your investment and the lender's interest.
9. Completion of construction: Once construction is complete, your construction loan usually converts into a standard home loan. Speak to your Mortgage Broker about the options available to you when converting from a construction loan to a traditional home loan.
10. Communication is Key: Throughout the process, communicate often with your builder and building Supervisor. Get regular updates on the progress of your build and conduct regular inspections yourself.  It’s a good idea to take photos of the progress on a regular basis so you can document any problem areas. 

By keeping these top 10 things in mind, you'll be well-equipped to navigate the construction loan process and build your dream home with confidence and clarity.