Building your dream home or undertaking major home renovations in Preston requires careful financial planning. Construction loans offer a specialised funding solution that differs significantly from traditional home loans, providing the flexibility needed for building projects.
Understanding Construction Loans
Construction loans are designed specifically for building projects, whether you're planning a new build, buying off the plan, or undertaking substantial renovations. Unlike standard home loans where you receive the full loan amount upfront, construction loans operate on a progressive drawdown system that aligns with your building timeline.
The key advantage is that lenders only charge interest on the amount drawn down at each stage. This means you're not paying interest on funds you haven't yet used, making the loan amount more manageable during the construction phase.
How Progressive Drawdown Works
The progressive drawdown system releases funds in instalments based on construction milestones. Your registered builder will provide a Progressive Payment Schedule that outlines when progress payments are required. These typically align with:
• Foundation completion
• Frame completion
• Roof and wall completion
• Internal fixtures and fittings
• Final completion
Each drawdown requires an inspection to confirm the stage is complete before funds are released. This protects both you and the lender by ensuring the project progresses as planned.
Interest-Only Repayment Options
During the construction phase, most lenders offer interest-only repayment options. You'll only pay interest on the amount drawn down, not the full loan amount. This reduces your financial burden while construction is underway and you may still be paying rent or mortgage payments elsewhere.
Once construction is complete, the loan typically converts to a standard home loan with principal and interest repayments.
Planning Your Construction Project
Successful construction financing starts with thorough planning. You'll need:
- Council plans and permits - All necessary approvals must be in place
- Fixed price contracts - Most lenders require a fixed price building contract
- Suitable land - Either owned or being purchased simultaneously
- Development application - If required for your project
- 'As if complete' valuation - Professional valuation of the finished property
For house & land packages, the process may be more streamlined as these often come with pre-approved plans and established builders.
Managing Construction Costs
Construction loans typically cover the core building work outlined in your contract. However, Out of Contract Items not included in your building contract will need separate funding arrangements. These might include:
• Landscaping beyond basic requirements
• Premium fixtures and fittings
• Additional electrical or plumbing work
• Driveway and external works
It's important to budget for these additional payments when determining your total project cost and loan amount.
Working with Tradespeople
Your registered builder will coordinate with plumbers, electricians, and other specialists, but understanding the payment flow helps you stay informed. The builder receives progress payments and is responsible for paying sub-contractors according to the agreed schedule.
A Progressive Drawing Fee may apply each time funds are released, so factor this into your overall project costs.
Special Considerations for Preston Projects
Building in Preston means working within specific council restrictions and council regulations. The ideal location you've chosen may have particular requirements that affect your building timeline and costs.
If you're planning to demolish existing property before starting your new build, this adds complexity to the financing structure and timeline. You'll typically need to commence building within a set period from the Disclosure Date specified in your loan approval.
Access Construction Loan Options
As experienced mortgage brokers, Andor Financial can help you access Construction Loan options from banks and lenders across Australia. We understand that each building project is unique, and we'll work with you to find suitable financing that matches your specific requirements.
The streamlined application process we provide takes into account the various stages of your project, helping you make a plan that works within your price range and timeline. Whether you're considering a home improvement loan for renovations or full construction financing for a new build, our team understands the local Preston market and council requirements.
Applying for a loan doesn't have to be overwhelming when you have experienced guidance. We'll help you understand interest rate options, loan structures, and ensure you're prepared for each stage of the construction process.
Call one of our construction loan specialists or book an appointment at a time that works for you to discuss your Preston building project.