Understanding the Basic of Construction Finance in Australia Construction finance loan caters to the property owners interested in building or renovation on the land they already own. For building homes in a hassle-free manner, it is important to avail construction finance from reputed lenders in Australia. We have explained here the basics of construction finance in Australia and how the processing of construction loans is carried out by the lenders. What is Construction Finance? Each lender or bank processes finance in a particular manner. Loan application is submitted and approved in timely manner with a conventional home loan. Construction loans are progress based finance, which means that rather than receiving the full loan at once like home loans, borrowers will receive these loans in steps throughout the stages of construction. These construction progress steps are called as progress draws. Borrowers only pay interest on the amount that they have currently drawn from the lenders or banks. Borrowers will begin paying full principal and interest payments, once the construction of house is completed by the builder. Construction Loan Processing: How Does It Work? When borrower applies for construction finance, the lender will require a copy of the building tender/contract and the construction plans. Lenders ask their experts to estimate the on-completion value of the property. They will also assess finance on the lesser of land price plus cost of construction. Lender will issue finance offer for borrower to sign and return, once their loan has been approved. Once builder is ready to begin receiving payments from the lenders or the bank, he will need to provide final approved plans, drawdown schedule, building insurance papers and other additional documents.
Paying to Builder Directly Builders should send borrower an invoice. Borrower then completes and signs a drawdown request form, which is available at bank or with the lender. Lending agencies or banks may require a valuation for confirming the construction work that has been completed so far. Construction loans will be advanced to their builder generally within five working days. Borrowers should repeat this process for each construction work payment required by the builder. Construction Loan Specialists Construction loan specialists can quickly work out which lending agencies or banks can approve the loan easily. Using their expertise, they can structure the finance in a way that suits the needs of the borrowers.
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