If you’re in the market for a construction loan, it doesn’t make sense to seek support from a broker who primarily helps people with loans for existing homes.
Choosing a loan is a big decision, so for your peace of mind, pick a broker who has experience in the area of loan products you are seeking.
That way, they’ll know the ins and outs of the specific area you need support with – the same goes for construction loans.
Why construction finance is different
The biggest difference between paying off a construction loan and paying off a loan for an established home is that a construction loan is usually paid off in parts.
The first part is for the land.
The second is a series of payments, paid at different stages of the building process.
Timing is key
Construction finance is typically more complex than securing finance for an established home, and timing has a lot to do with this. For example:
An established home is usually signed on a 45-day contract, which means you have 45 days to settle the property, once the offer is accepted.
As a result, transactions for established homes happen very quickly, which means your broker is involved for a shorter period of time.
A construction loan can take 3 to 5 months to secure, from the date of your initial enquiry to settlement of the loan.
During this period of time, your broker will need to do a fair bit of legwork.
What kind of legwork?
A construction mortgage broker needs to perform the following tasks before settlement even takes place. They need to:
Get initial conditional approval (subject to building plans and contracts).
Liaise with the land agent to understand land titles and changing due dates for finance (a good broker will also seek extensions if needed).
Work with the build to make sure building contracts and plans are running to schedule.
Liaise with the settlement agent about the loan application process, and provide title details once they have been issued.
Keep in touch with the lender; to ensure the finance application remains active (they typically lapse after 3 months).
Order a valuation and get formal approval from the lender, once the building contract and plans are held, and the titles have been issued.
Make sure the lender prepares urgent documentation, so it is ready for settlement. (After land titles have been issued, developers tend to allow 2 weeks for settlement.)
A good construction loan broker will make sure your lender is making timely payments to the builder.
You will receive invoices at various stages of the build, which must be paid on time.
The build phase is when you should get excited about the progress of your new home – not worry about whether the lender is paying the builder.
If the builder is not paid on time, they may stop progress on your build. A good construction loan broker does not let this happen.
Saving you thousands
Besides the nitty gritty listed above, a good construction loan broker will also make sure you secure optimal savings over the course of your loan. Some of these savings include:
Stamp duty – stamp duty is only payable on the land portion of a house and land transaction. However, your broker will need to structure your finance application correctly to take advantage of this.
First homebuyer concessions – for individuals building for the first time. These applyin all states of Australia.
Reduced lender fees – if your broker settles the land loan first, and then settles the build loan later, you could end up paying far more lender fees.
Other concessions may apply to you; however in most cases you will need your build contract available at the time the land is settled.
A good broker will work with your building to make this happen, and as a result, you’re likely to end up saving thousands over the course of your loan.
Need a construction loan broker?
Contact us about securing a construction loan that not only saves you more, but also matches your unique circumstances and goals.
Our brokers make sure you save thousands over the entire course of your loan, and we ensure your lender meets their regular payment obligations to your builder, once the initial loan for the land has been paid.
Financial Advice Disclaimer: This information is general in nature. Mortgage brokers do not provide financial advice. Clients seeking financial advice will be referred to a qualified financial planner.