Renovate or build
Whether you are renovating your home, building a new home or buying a home off the plan, it's important to get the right construction loan to match your building plans.
Whether you are renovating your home, building a new home or buying a home off the plan, it's important to get the right construction loan to match your building plans.
If you are making simple renovations to your home you may be able to apply for a standard home loan – or top up an existing loan. However, if you are thinking of a knock down rebuild, an off the plan construction, or making significant renovations to your existing home, most lenders will require you to take out a construction loan.
It’s important to check with your lender before you start any remodelling to an existing home. Even simple structural changes to your home may breech the agreement that you have with your current lender.
Construction loans are just not as straightforward as simple home loans. There are additional decisions to be made about the structure of the loan. Additional documentation is required and the funding is released in an entirely different way.
You will need to satisfy the standard loan questions including information about your finances, income and identity. Your application for a construction loan also needs to include contracts for the building works, as well as the plans.
The valuation process is also different, in that the valuer will look at the plans and provide the lender with an ‘as if complete’ valuation. This will determine the Loan to Value Ratio of the loan. It will have an impact on whether you have to pay Lenders Mortgage Insurance, or a higher interest rate.
Most lenders will require you to have a fixed price building contract. This contract should state the amount of the build, inclusions and a schedule of the progress payments to be made. The progress payments, or drawdown schedule, is very important. You don’t start paying interest on each portion of the loan until it is paid to the builder – so you, the lender and the builder need to be satisfied with the schedule.
Any changes to the contract and plans can trigger a review of the loan. So be as sure as you can be that the plans and contracts the lender sees are final. It is also worth trying to pay for any small amendments from your own pocket, rather than changing the loan and risking a reassessment.
Getting a construction loan is not as simple as it seems, so contact Milestone Lending if you are thinking of renovating or building a new home.
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