The basics of taking out a construction loan

The basics of taking out a construction loan

Building your own dream home in Australia could be a major life goal of yours, something that you've always wanted to design and create for yourself. With the rising strength of the national economy and the increasing sales of land across the nation, now could be the perfect time to begin investigating construction home loan options for your future. However, unlike a regular mortgage, there are various checks in place that make applying for a construction loan slightly more complicated.

Here are the basics of applying for your own construction loan.

Purchasing your land

Before you consider the designs and finances of your construction, you need to find a suitable piece of land. There are a number of factors to keep in mind when searching the market for an appropriate lot, which can make or break the entire building process.

For example, don't just take the size of the lot into consideration. It's important to to check the slope and shape of it as well. If you choose a piece of land with too many irregularities, you may find some of your construction design plans hindered, forcing you to change your plans and abandon some of your initial features.

Seeking out the right builder

After you secure your land, it's time to find the right builder. It's always worth choosing a registered Master Builder to undertake your project. There are thousands across the country, so finding someone to help you make your dreams a reality shouldn't be difficult.

You'll need to work with them to help create the initial construction plans for your property, as these need to be presented to any home loan lenders you approach as proof of your intentions. Furthermore, taking along a fixed Housing Industry Association/Master Builders Australia building contract is also essential.

These documents will provide the lenders with an accurate, step-by-step breakdown of all the costs involved with each part of the project. These will be priced and measured out, allowing for an accurate construction home loan to be provided. Not only are these necessary for securing your finances, but they can also be comforting to have for your own curiosity. Being able to track the cost of your project and see exactly where all the money is going can help keep things above board and transparent.

Get the right government approvals

Another thing to take care of before construction can begin is taking care of council approvals. These are essential for things like decks and pools, and can get you into a lot of trouble if you don't take the initiative to sort these out early.

Once all these things have been taken care of, it's time for your construction project to begin! Because your project has been split into different sections, the funds for each part of your property will trickle down as the previous section is completed. In order for this to happen, a building inspector will come at the end of each phase to check out the property and sign off the project's current status - verifying that the funds have been used and it's time for the next allocation to be delivered.

At the end of the project when your home is completed, the construction loan - in its entirety - will be converted into a variable-rate home loan for you to begin paying off. This acts exactly the same as a normal mortgage and will start as soon as the project is finished.

If you're interested in taking out a home loan and building your dream home in Australia, begin making preparations and start towards your own construction project today.

Image credit: JD Hancock