Construction Loans
Construction & Development Finance
Construction finance solutions can be structured in many ways to suit the specific needs of a development project and the borrower’s financial situation.
As all borrowers do not fit into mainstream lenders’ credit criteria, we can also arrange alternative funding solutions to suit the individual circumstances and requirements of borrowers.
We arrange Construction & Development funding solutions for
Office buildings
Shopping Centres
Town Houses
Petrol Stations
Warehouses & Storage
Hotels & Pubs
Land Subdivision
Medical Clinics
Factory units
Residential units
CHILD CARE CENTRES
Warehouses & Self Storage
Full Doc Funding Options
Arranged via major banks and other financial institutions, generally requiring pre-sales and up-to-date full financials.
Low Doc Funding Options
Usually sourced via tier-two & private lenders, they are far more flexible and generally do not require pre-sales or up-to-date full financials.
Construction & Development Finance
Every day, individuals and small businesses in Australia enter into contracts for building and construction projects. Constructing or building a property could be a difficult exercise. However, it allows you to get creative and design a property tailored to suit your business or personal lifestyle. Whether you demolish and rebuild or renovate an existing property, consider a new project or are buying land to build a new home, a construction loan could be an ideal solution to achieve your goals. Construction finance solutions can be structured in many ways to suit the specific needs of a development project and the borrower's financial situation.
Securing finance for a planned construction project could be a daunting task, whether working on a commercial construction project, a self-build or a home extension.
All borrowers may not fit into mainstream lenders' credit criteria. However, at Aus Wealth, we can also arrange alternative funding solutions to suit individual circumstances and requirements. We have helped many independent property developers or owner-builders who acknowledge the need for an alternative approach to secure flexible, fuss-free funding for construction projects. We will guide you through all you need to know about construction finance and address critical concerns and frequently asked questions, exploring the advantages and drawbacks.
What is a construction loan?
Generally referred to as a construction or owner-builder loan, the type of finance is usually a short-term, secured loan used to pay for the construction cost of the building project. The type of property can include residential, commercial, or industrial buildings.
A construction loan provides funds to pay a licensed builder or to finance an owner-builder project throughout each stage of your building or renovation project. Significantly, the loan amount is based on the expenses needed to complete the construction and is not based on the property value at the end of the project. Therefore, construction loans/owner-builder loans operate very differently from standard home loans. Construction or owner-builder loans typically charge interest-only repayments for the construction period or duration of the build and are traditionally fixed at 12-18 months.
Banks and finance companies also offer home construction loans for consumers looking to construct their residential home property . Lenders provide home construction loans to both existing and new borrowers. Most lenders offer this facility through their traditional home loan products.
Benefits of a construction loan
A construction loan offers flexibility
Drawdown as you build
Pay interest only during the building phase
Save on interest by linking to an offset account.
How do construction loans work?
Construction loans can also be identified as a convenient loan option structured around the building plans, with staged drawdowns. Once a loan application is approved, the lender will start releasing the agreed payments. These progress payments are arranged against an agreed schedule. A construction process typically has about five to six phases. So the loan usually gives you access to funds gradually throughout the building process as you complete different project stages. In other words, a construction loan is funded through progress payments to meet the construction costs in line with the progress payment schedule by the relevant credit provider, and you will be paying interest on the used loan amount at various stages during the building period.
You will only need to pay interest on an agreed day of the month for the amount used, as most construction loans are progressively drawn down. However, the segmented loan arrangement retains the interest repayments lower than the interest accumulated on the entire loan balance, and you will be paying lower interest during this time. Funding a home built this way can help reduce the risk of financial loss by merely borrowing block loan amounts at a time instead of the entire loan. However, the loan repayments are interest only during the construction period and principal and interest once the building is completed.
When applying for a loan, the lender will require council-approved building plans and a copy of the fixed-priced building contract. The lender may also ask a valuer to estimate the on-completion value of your property and assess the loan on the lesser of the land price plus the construction cost or the value on completion. Lenders will determine the future rental income if you build an investment property, which may significantly enhance your borrowing capacity.
When the builder is ready to invoice for the progress payments, he will have to provide supporting documents such as the Council approvals and builder's insurance etc. The lender may perform a valuation before making the first and final progress payments.
Even though banks provide construction loans, you may also need to consider other specialist lenders in the market depending on the nature of your construction project. Especially commercial construction loan requirements can vary depending on the lender's risk appetite and their usual lending criteria. You should therefore find a lender that understands your needs better. To achieve this, seek independent advice from a qualified financial adviser who can access the best deal in the market for you.
When considering renovating, designing or building, there is a lot to consider. Aus Wealth Loan Specialists can provide you with the correct personal advice and guidance and help ensure a swift and positive outcome. We have years of experience understanding the guidelines required to gain approval for commercial or own home construction funding.
