What You Need To Know About Construction Finance Australia
Most people prefer building their dream home rather than just buying a fully-built one. If you’re one of those people, chances are you’ve heard about construction financing. Compared to traditional home loans that you acquire when buying a finished house, construction finance is used for renovating a house or building one from scratch (or making major renovations.) In this specialized lending option, the bank or lender will pay the builder in installments (called progress payments) until they complete the entire construction project successfully. If you’re looking to build or renovate a house and would like to apply for crane finance as well, keep on reading this article to learn more about construction finance in Australia.
Construction Finance: How Does It Work?
For regular home loans, the lender agrees to give a lump sum amount once you’ve reached an agreement. Construction financing, on the other hand, the lender gives the builder progress payments at different stages of construction.
These are the five typical stages of construction. Progress payments will then be paid directly to the builder at the end of each stage:
Slab Down or Base
This is the stage where you lay your property’s foundation. It can include leveling of the ground, and the waterproofing and plumbing of the foundation as well.
This is where the frame of your property is built. This can cover partial brickwork, roofing, windows, and trusses.
This is where the largest portion of construction finance in Australia goes. This includes putting up the walls, doors, and windows (that’s why it’s called the “lockup” stage, to make sure the property is lockable.)
This includes installing your property’s internal fittings and fixtures. It can range from installing plasterboards, gutters, to electricity.
This can include payments of contacted items, like final payments for builders and equipment. It can include any finishing touches too, including electricity, plumbing, and overall cleaning.
Below is the standard HIA Progress Payment schedule lenders will ask you to follow:
- Deposit – (depends on the total contract price)
- Base – 15%
- Frame stage – 20%
- Lockup – 25%
- Fixing – 20%
- Completion – balance
What Documents Will You Need for Construction Finance Australia?
Like a regular home loan, you will need copies of your latest payslips, some saving statements, and other supporting documents. However, you may also need a few extra things, such as:
You don’t need a council-approved building plan to get approved. But having an approved plan can give the valuer a clear picture of the property, layout, and size of the house you’re planning to build.
This contains details like the construction stages, progress payments schedule, how long it can take to construct your home, and the price to build the property. Luckily in Queensland, your construction finance Australia can still be approved even without signing the building contract!
This document states what kinds of finishes and the quality of materials you’ll be using on the property. This can make a huge difference in the total value of your property.
These can include anything from installing solar panels, adding a pool, to extra landscaping. It’s crucial to give this to the valuer so they can factor these in, especially if these can increase the overall value of the property.
Once your construction finance gets approved, the builder is required to submit the following additional documents:
- The council-approved plan
- Drawdown schedule
- Insurance plan
Do All Banks Offer Construction Finance Australia?
The majority of the major banks offer this service. But online banks and other smaller lenders do not.
This is because, from a bank’s perspective, construction finance can be very time-consuming and riskier than regular home loans. Plus, after settlement, lenders still need a separate team to process progress payments and ensure the builder finishes the work.
If a bank is slow at processing progress payments, the builder can get frustrated and therefore, may choose to delay construction. You can get frustrated too since things aren’t going as planned. This is why we always go with a bank that is good with construction finance and can make payments quickly.
Why Should We Be Your Construction Finance Australia Brokers?
Construction finance isn’t like other financing options and can be tricky. While building a home comes with a lot of challenges, getting the right financing plan can help smooth out the process. This is why it’s essential to work with a brokerage firm that is widely experienced to help you get the best offer possible.
Here at mhf Finance, our goal is to help you find the right bank so you can start building your dream home. We will manage the whole financing process, from liaising with land agents to processing the necessary documents, to make the process seamless and stress-free. If you’re building a property other than a house, we can also help with equipment finance to get your business started.
If you’d like to apply for construction finance Australia, consider talking to any of our brokers to help you out