1. Fixed construction periods
Most lenders will place restrictions on the time allowed to complete the construction. This can range from 6 months to 24 months.
If land was purchased to build upon, there may also be time restraints on how long after settlement that construction needs to start.
Ensure that if there are time restrictions, you either stick to them or contact the lender for an extension.
2. Progress fees
When looking at the fee structure of the construction loan, be sure to review the cost of the progressive payments.
Some loans will charge on per payment structure and charge between $0-$250 per payment. That means on a 5-payment structure, it could potentially cost $1,000 just to make the payments.
Other lenders will charge a one-off fee for all payments and the cost can range from $0-$700.
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3. Owner-builder restrictions
If you are an owner-builder, be aware that some institutions place tighter restrictions on this type of lending – or may even not lend at all. The restrictions can include a reduction in the amount available to borrow opposed to a person who uses a separate licensed builder under a fixed price contract.
The tighter restrictions or inability to borrow are in place due to the owner builder loans being classed in a higher risk category.
4. Extra paperwork required
When applying for a ‘normal’ home loan or investment home loan, the documentation required is mainly to do with your current financial situation, i.e. payslips and bank statements. Construction loans also require documentation surrounding the actual construction, such as building permits, fixed price building contracts, building plans and building insurance.
5. Contract variations
If during construction the building plans change, be aware that you must notify your lender of these changes. Depending on the size of the variation a complete assessment may be required to be undertaken by the lender again. The best advice would be to ensure that all variations to the plans have been done prior to application.
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Once you have taken all of these points into consideration, the next step is comparing the current variable building home loan products available on the market.