Construction home loans are designed for the building of new properties and involve staged drawdown payments, where funds are recieved in instalments after a pre-agreed body of construction work has been completed.
With a standard home loan, the entire loan amount (principal) is used to pay for the property once the contract has settled. Construction home loans are typically interest only during the land purchase and construction phases and are drawn down in stages as the property is being built. Upon completion of the property, the loan will revert to another type.
With Construction home loans, the balance of the loan is released in stages as construction proceeds. Each major phase of construction is funded in a separate draw down and as the next milestone is reached the next portion of the funds is released to the builder as a progress payment. In Western Australia, the HIA alludes that the common progress payment points would include the following:
Single Storey House
Double Story House
Construction Home Loan Advantages
- Specifically designed for building and enable you to draw down the loan in stages, rather than 100% upfront like most other loans.
- Most are interest only until the completion of the property.
Construction Home Loan Disadvantages
- Given that at the lockup stage, typically 80-90% of a loan may be drawn down. This period can last for several months, so your regular repayments will be near to their maximum, and you won't even be living in your property.
Most Suitable For
- Investors and property developers.
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