How Do Construction Mortgages Work?

When it comes to your forever home, you want it to perfectly suit you and your family’s needs. The best way to get everything you want out of a home is to build it yourself – the only issue is finding the funds to do so. Securing a construction loan will allow you to build without financial stress. Here’s some advice from our mortgage brokers in Sydney for anyone considering a construction loan.

Construction workers
Construction Workers

What Is A Construction Loan?

A construction loan is exactly what it sounds like. Instead of paying your builder’s invoices yourself, your lender agrees to finance your construction. The easiest way to secure a construction loan is to contact our experienced team of mortgage brokers in Sydney. 

How A Construction Mortgage Works

Regular Home Loan Vs Construction Loan

The key difference between regular home loans in Australia and a construction loan is the way you will receive the funds. While regular loans supply the funds upfront so that you can purchase the home, construction loans are paid out in installments. These progressive payments will coincide with the builder’s invoices which are usually sent after each stage of the building process. 

Construction Loan Interest 

The good thing about these progressive payments is that you only pay interest to the bank on the amount you have already paid. This allows you to keep your repayment costs manageable as you build, which is especially useful if you’re paying rent in the meantime. 

Deposits and Lender’s Insurance

Just like regular home loans in Gold Coast, you will need to pay a deposit and potentially lender’s insurance. The deposit amount will depend on how much you need to borrow. If you are refinancing your loan, you can in many cases pull from your existing equity to act as your deposit. 

Bundling Your Home Loan and Construction Loan

If you’re buying land that you intend to build on, you can arrange a bundled regular loan alongside your construction loan. This is a common route if you are buying a land package deal from a developer. If you already own land, you can usually refinance your existing home loan when you apply for a construction loan 

You can also get a separate construction loan. This can be the better option depending on your current loan and lender if you already own land, are renovating your existing home, or it simply makes more sense to arrange them separately.

Important Factors To Consider

Government Incentives

Are you eligible for any government incentives? If you’re a first home buyer or belong to another specified group, there could be a government grant available to you. Contact our 1st St mortgage brokers in Sydney to discover what incentives you could be eligible for.

What Happens If Your Build Goes Over Budget

When you secure a construction loan, your lender will agree to finance a specified amount for your build. The amount will be based on your builder’s quotes for relevant stages of the project. 

If for any reason these stages go over budget, your builder will provide you with a variation to the original quote. You can then take this variation from your builder to your lender and, if they approve the extra funds, they will provide the additional funding to meet the new cost.

It’s important to note that your lender may not always provide these extra funds. To prepare for this outcome, ensure that you are clear on the quoted pricing before you apply for the loan so that you don’t go over budget for an avoidable reason. 

Weather, trade shortages, and material inflation can cause unforeseeable expenses. Set aside a contingency fund to cover any unexpected costs that your home loans in Sydney won’t cover.

Secure A Construction Loan With Our Mortgage Brokers In Sydney, Melbourne and Gold Coast Australia wide

Ready to build your dream home? Contact 1st Street Mortgage Brokers in Sydney, Melbourne, and the Gold Coast for assistance in obtaining a construction loan anywhere in Australia.

Are you a first homebuyer looking for

Help?

We can help get you into your new home.

We’ve worked with clients across Australia to access the different first home owner grants (FHOG) as well as the various stamp duty and other concessions that may be available depending on which state you are in. We can talk you through your various options as well as helping you compare things like buying vacant land vs. an established home.

Enquire today!

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A word from our satisfied customers

Maxine Zhong
Maxine Zhong
19 October 2023
Amanda has been such an incredible support throughout our very first time going through the home loan process. Her thoughtfulness to regularly check in to make sure all our questions were answered and that all our documents were in place helped to make the whole daunting process feel seamless and easy. I could not recommend her enough - she made sure to keep us informed every step of the way and made sure all necessary documents/processes were completed well ahead of time so we never had to worry about missing any steps. She went well above and beyond her role, and I know we will definitely be coming back to her in the future, as well as recommending her to all of our networks! Thank you again, Amanda!
Mark Nesbitt
Mark Nesbitt
11 October 2023
Greg and the team provide an outstanding service. Highly recommended
Christine Tran
Christine Tran
23 September 2023
Yuval handled my first ever home loan, he did such an amazing job I asked to him to refinance for me 2 years later. Yuval made everything very easy for me, and will give his best recommendation as if it was his own. Would always recommend Yuval :)
David Petrini
David Petrini
25 August 2023
Yuval Bloomfield was an absolute delight to work with. He made it extremely easy for my clients to discuss about their financial situation. With Yuval's strong connections he was able to get the loan my clients wanted in very quick time. Will definitely refer Yuval again.
Sophie Linehan
Sophie Linehan
24 August 2023
Greg and the team at 1st Street were fantastic all the way through the process of getting our financing sorted and buying a new home. They not only secured us the most competitive mortgage in the market but they also gave advice on a number of mortgage-adjacent questions that came up along the way. Their responsive and thoughtful guidance helped make the nail-biting process clear and calm. We would definitely recommend their services.
Gabrielle Scott-Jones
Gabrielle Scott-Jones
18 August 2023
Greg and his team gave me exceptional advice and support. They were timely and detailed in their responses and dealt patiently with me as a first home buyer and all of my questions. The lender at the bank commented on how well I was being looked after compared with other brokers in the market. I’d highly recommend 1st Street to anyone, including friends and family.
Eli Simic
Eli Simic
15 August 2023
Great communication and fast service
Richard Kuipers
Richard Kuipers
11 August 2023
Jeremy and his team are superb. Negotiated the best deal for us and were an absolure pleasure to work with. Highly recommended, you can't do any better in my opinion.
Jordan Rivkin
Jordan Rivkin
1 August 2023
The team at 1st Street truly are professionals. I can't recommend Jeremy highly enough, he is extremely competent and just a great guy. You're in safe hands with 1st Street!
Yossi Bengida
Yossi Bengida
23 July 2023
Another amazing job by David and Bree. Always available for our questions, helpful and just 10/10 Seriously good work !! See you on the next one :) Yossi and liz