If you're planning a new build or major home renovations in Bulimba, understanding construction loan settlement is crucial to your project's success. Unlike traditional home loans, construction loans work differently, with settlements occurring at various stages of the project rather than as one lump sum payment.
How Construction Loan Settlement Works
Construction loan settlement involves a series of progressive drawdowns throughout your building project. Instead of receiving the entire loan amount upfront, funds are released in instalments as construction milestones are reached. This approach protects both you and the lender, ensuring money is only released when work has been completed to specific standards.
The process typically begins when you commence building within a set period from the Disclosure Date. Your lender will work with a qualified valuer who conducts an 'as if complete' valuation, determining what your finished property will be worth and establishing the loan amount accordingly.
Progressive Payment Schedule and Drawdowns
When applying for a loan, you'll receive a Progressive Payment Schedule that outlines:
- When payments will be made to your registered builder
- How much will be released at each stage
- What construction milestones must be met
- Required inspections and approvals
Progress payments typically occur at key stages such as:
- Site preparation and foundations
- Frame and roof completion
- Internal fit-out commencement
- Practical completion
Remember, lenders only charge interest on the amount drawn down, not the full loan amount. This means you'll start with interest-only repayment options on smaller amounts, with repayments increasing as more funds are released.
Ready to get started?
Book a chat with a Finance & Mortgage Broker at LBK Lending today.
Managing Your Construction Loan Settlement
To ensure smooth settlements throughout your project, make a plan early. This includes:
- Securing all necessary council plans and permits
- Confirming your registered builder has appropriate insurance and licenses
- Understanding any council restrictions or council regulations affecting your ideal location
- Reviewing fixed price contracts carefully
- Identifying any Out of Contract Items not included in your builder's quote
For those buying off the plan or purchasing house & land packages, the settlement process may differ slightly, with specific timing requirements and additional inspections.
Working with Tradespeople and Sub-contractors
Your registered builder will coordinate payments to various tradespeople including plumbers and electricians. However, it's important to understand that your construction loan progressive drawdowns must align with when you need to pay sub-contractors. Good communication between all parties prevents delays and ensures everyone gets paid on time.
Additional Considerations for Bulimba Residents
Bulimba's riverside location and established neighbourhood character mean you'll need to consider:
- Whether you're planning to demolish existing property or working with suitable land
- Local council regulations specific to the area
- Your price range and how it aligns with local building costs
- Development application requirements for your specific project
Accessing Construction Loan Options
As your local renovation Mortgage Broker, LBK Lending can help you access Construction Loan options from banks and lenders across Australia. We understand that each project is unique, whether you're undertaking major home renovations or starting a completely new build.
Different lenders offer varying interest rate options and loan structures. Some may charge a Progressive Drawing Fee for each drawdown, while others include this in their overall loan package. We'll help you compare these options to find what works within your budget.
What to Expect During Settlement
Each progressive drawdown involves:
- An inspection to confirm work completion
- Valuer assessment of the completed stage
- Lender approval for fund release
- Payment to your builder or directly to sub-contractors
This streamlined application process for each drawdown typically takes a few days, provided all documentation and approvals are in order.
Planning for Additional Payments
Always budget for potential additional payments beyond your original contract. These might include:
- Variations requested during construction
- Upgrades to fixtures and fittings
- Unforeseen site conditions requiring extra work
- Council requirement changes
Considering a home improvement loan alongside your construction loan might be wise if you're planning extensive landscaping or other finishing touches.
Understanding construction loan settlement helps you manage cash flow, maintain good relationships with your building team, and keep your project on schedule. With proper planning and the right mortgage broker support, your Bulimba building project can proceed smoothly from start to finish.
Call one of our team or book an appointment at a time that works for you to discuss your construction loan options and settlement requirements.
