Building your dream home in Cannon Hill is an exciting journey, but understanding construction loan structures can feel overwhelming. As your local renovation Mortgage Broker, LBK Lending helps clients access Construction Loan options from banks and lenders across Australia, making the process more manageable.
Understanding Construction Loan Basics
Unlike traditional home loans, construction loans work differently. Instead of receiving the full loan amount upfront, lenders release funds through a progressive drawdown system. This means they only charge interest on the amount drawn down, which can significantly reduce your interest costs during the building phase.
Most construction loans offer interest-only repayment options during the building period, allowing you to manage cash flow while paying sub-contractors, plumbers, electricians, and your registered builder.
Progressive Payment Structure
The heart of any construction loan is the Progressive Payment Schedule. This schedule aligns payments with construction milestones, typically structured as follows:
- Initial drawdown - Usually 10-15% upon signing contracts and obtaining permits
- Slab stage - Around 15-20% when the concrete slab is complete
- Frame stage - Approximately 20-25% when the frame is erected
- Lock-up stage - About 20-25% when windows, doors, and roof are installed
- Fixing stage - Around 15-20% when internal fittings are complete
- Final payment - Remaining balance upon practical completion
Lenders require an 'as if complete' valuation before approving your loan amount, ensuring the finished property will justify the total investment.
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Book a chat with a Finance & Mortgage Broker at LBK Lending today.
Types of Construction Loan Structures
House & Land Packages
These streamlined application process loans are popular for new builds on suitable land. The structure typically involves two settlements - one for the land purchase, then progressive payments for construction.
Major Home Renovations
Home improvement loan structures allow you to renovate while living in your current property. These loans consider the improved value after renovations are complete.
Demolish and Rebuild
If you're planning to demolish existing property and start fresh, this structure accounts for demolition costs within the initial drawdown phases.
Buying Off the Plan
These loans structure payments around developer milestones rather than traditional construction stages, with specific timeframes to commence building within a set period from the Disclosure Date.
Important Considerations
Council Requirements
Before applying for a loan, ensure you have council plans, permits, and understand local council restrictions and council regulations. Some projects may require a development application, which affects your timeline and costs.
Contract Types
Fixed price contracts provide certainty for both you and your lender. However, be aware that Out of Contract Items not included in your original agreement can affect your budget.
Fees and Charges
Most lenders charge a Progressive Drawing Fee for each stage payment, typically ranging from $300-$500 per drawdown. Factor these into your budget alongside your interest rate calculations.
Planning Your Construction Journey
Successful construction financing starts with a solid plan. Consider your ideal location in Cannon Hill, determine your price range, and research various stages of the project thoroughly. Understanding potential additional payments helps prevent budget blowouts.
Whether you're building your first home, undertaking major renovations, or developing an investment property, the right loan structure can make all the difference. Different lenders offer varying terms, interest rates, and flexibility around instalments and progress payments.
At LBK Lending, we understand that every construction project is unique. Our experience with local council requirements and established relationships with lenders across Australia means we can help structure your construction loan to suit your specific needs and timeline.
Call one of our team or book an appointment at a time that works for you to discuss your construction loan options today.
