As a concreter, you've probably thought about building your own home or taking on major home renovations. Construction loans work differently from regular home loans, and understanding their features can help you make informed decisions about your next project.
What Makes Construction Loans Different
Unlike traditional mortgages where you receive the full loan amount upfront, construction loans work on a progressive drawdown system. This means the lender releases funds in instalments as your project reaches various stages of completion. For concreters working on their own builds, this feature aligns perfectly with how construction projects actually unfold.
The key advantage is that lenders only charge interest on the amount drawn down, not the full loan amount. So if your total loan amount is $500,000 but you've only drawn $200,000 for the foundation and initial concrete work, you're only paying interest on that $200,000.
Progressive Payment Schedule and Construction Milestones
When applying for a loan, you'll work with your lender to establish a Progressive Payment Schedule. This schedule outlines when funds will be released based on construction milestones. Typical stages include:
• Site preparation and foundation work
• Frame construction
• Roof completion
• Lock-up stage
• Fixing stage
• Practical completion
As a concreter, you'll appreciate that the foundation stage is usually one of the first major drawdowns. This timing helps with cash flow, especially when you need to pay sub-contractors like plumbers and electricians who work alongside your concrete pours.
Interest-Only Repayment Options
During the construction phase, most lenders offer interest-only repayment options. This feature recognises that you're not yet living in the property and may still be paying rent or mortgage payments elsewhere. You'll typically switch to principal and interest repayments once construction is complete and you've moved in.
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Book a chat with a Finance & Mortgage Brokers at Tradie Home Loans today.
Valuation Process and 'As If Complete' Assessments
Construction loans use an 'as if complete' valuation method. This means the lender assesses what your property will be worth when finished, rather than its current vacant land value. This approach allows you to borrow against the future value of your completed home.
The lender will require council plans and permits before approving your loan. They need to see exactly what you're building and confirm it complies with council regulations and restrictions.
Understanding Fees and Timelines
Construction loans come with specific fees, including Progressive Drawing Fees charged each time you request a payment. These typically range from $200 to $500 per drawdown, so factor these into your budget.
Most lenders require you to commence building within a set period from the Disclosure Date, usually 6 to 12 months. This timeline ensures the project moves forward and the 'as if complete' valuation remains current.
Fixed Price Contracts and Budget Management
Lenders prefer fixed price contracts because they provide certainty around the final cost. If you're building your own home and acting as your own registered builder, you'll need to demonstrate detailed costings for materials, labour, and all aspects of construction.
Keep in mind that Out of Contract Items are not included in your construction loan. These might be landscaping, driveways, or premium fixtures beyond the standard specification.
Planning Your Construction Loan
Before applying, make a plan that covers:
• Your ideal location and suitable land
• Realistic price range including all costs
• Whether you'll demolish existing property or start fresh
• Development application requirements
• Timeline for completion
House & land packages can sometimes offer more straightforward financing, as the builder relationships with lenders can streamline application processes.
Working with the Right Mortgage Broker
Construction loans are more complex than standard home loans. Working with a renovation mortgage broker who understands the trades industry can help you access construction loan options from banks and lenders across Australia. They can explain different interest rate structures and find lenders who understand your situation as a tradie.
Whether you're considering buying off the plan, undertaking major renovations, or starting a completely new build, understanding these features helps you choose the right loan structure for your project.
Construction loans offer flexibility and features designed around how building actually happens. The progressive drawdown system, interest-only periods, and milestone-based payments all work together to support your project from start to finish.
Call one of our team or book an appointment at a time that works for you to discuss how construction loan features can support your building project.
