Construction loans are just a different version of a standard home loan which rolls out in stages as the different phases unfold – from your land purchase through to your home construction.

While you can readily get a loan for land purchase alone, if you are buying land with a view to build, most lenders will try to set up the entire approval process for you from the outset.

Your borrowing options are pretty much as broad as the options available for the purchase of an established home and your choices will naturally be driven by your personal situation.

There are typically five loan stages:

1. Pre-approval for your land and future build.
2. Secure a block of land and then formal approval for land settlement.
3. Builder selection and formal loan approval for the construction portion of your loan.
4. Construction commencement and loan drawdown (this is typically on an interest only facility until the home is fully finished).
5. Construction completion and switch to principal and interest home loan (if applicable).

Construction Pre-approval

When you sit down with a dedicated Priority Home Loans advisor, we will go through your unique situation with you in detail to get a clear understanding of your current financial position and future plans.

We will recommend a lender and a suitable home loan product. The final decision about which lender you go with is completely up to you and once made, we will cover what you need to do and when you need to do it in order to get through the process successfully!

We will prepare your home loan application with you, and along with your supporting documentation, submit it to your chosen lender for a conditional approval.

Land Purchase

Most lenders will require a commitment to a time frame within which construction will commence if you seek funding to assist with the purchase of land alone.

Construction Loan Approval

For construction approval, you will be required to present:

1. Your fixed-price building contract with a licensed builder, including proof of builder’s insurance, current for the construction period. 
2. Your council approved plans and specifications of the proposed residence
3. Construction loans require a level of flexibility and are therefore usually variable rate loans and typically interest only.

Progress Payments

Once progress payments commence, your lender will normally require inspections at each payment release point. Your building contract should nominate the number of progress payments for the construction.

During the construction period, you would typically make repayments monthly on an interest-only basis, and many lenders now give you the option of making additional repayments.

Construction Completion Loan Switch

Once construction is complete, you will then typically finalise how you want to repay your loan. You might then switch to a different loan or choose to repay your loan in monthly, fortnightly, or weekly instalments.

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