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.

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.