The difference between a Construction Loan and normal Home Loan is that you don’t receive all of the funds at the outset, like you would at settlement for an established property.

One of the main advantages of using a Construction Loan is that you only pay for what you need as you go.

Construction Loans are interest only during construction period, so by having a progressive payment system, you only pay interest on the amount that has actually been used at that point in time.

Another advantage is that the quality of the works, are assessed by your lender throughout the project, which can protect you from paying for inferior or shoddy workmanship.

Also when you are building your own home,  you don’t pay stamp duty on a completed project.

There are generally 6 stages involved when building a property, which gives you an idea of when funds will be needed during the project.

These are:

• Deposit
• Foundation or Base Stage
• Frame
• Lock Up
• Fixing/Fit out
• Completion

You should always negotiate a fixed price contract with your builder to lock in the majority of costs before you begin the project.

When applying for a Construction Loan, it is important that you have the following documents:

• Council approved plans
• Progress payment schedule
• Fixed price contract with licenced builder (signed/dated)
• Builders Risk/Public Liability Insurance
• Homeowners warranty insurance if applicable

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