Building your own Perth home is the Australian dream.
You’ve been thinking about it for years, coming up with plans and now you’re ready to start building your first home in Perth. The only problem is financing it.
Construction loans can be complicated, but Mortgage Hero can help simplify the entire process. We can help explain the confusing aspects of the loans, find the right lender for you, get the best rate, and help you with the paperwork.
How are construction loans different?
Construction loans vary from normal finance, because they are generally used while building or renovating. The most common ones are for building personal or investment properties, but they can also be used for businesses, commercial property and apartment complexes. Rather than getting the entire principal at once and having unused money sitting in your account, which you would be paying interest on, they are paid out in stages when you need it.
Typical payment stages include the purchase of the land, the pad, the roof, the lock up and completion. Doing it in separate stages means that interest is only calculated for the amount of funds that you have accessed, rather than the entire principal from day one. Once the project has been completed, it becomes a regular mortgage for the rest of the loan period. Borrowers can choose which type of loan product they would like it to revert to.
The basic requirements for a construction loan include council approved plans and a fixed price building contract.
How do construction loans work?
Financial institutions will generally send a valuer to the construction site upon the completion of each stage to make sure that it has been finished in accordance with the fixed price building contract before releasing the funds.
Most lenders will only lend a portion of the value of the property, which can vary greatly between each bank. The amount that the bank is willing to lend is based on the borrower’s ability to service the loan. Mortgage Hero can help you find the lender who best suits your financial situation.
Commercial Construction Loans
Commercial construction loans are designed for developers. They tend to have higher rates because there are greater risks involved in new commercial developments. Financial institutions charge higher rates because there is no operating history for them to underwrite the loan. It can be a gamble for the lender on whether the development will be successful and they will recoup their investment.
Why should you use a construction loan?
The advantages of a construction loan include a lower overall interest repayment, because the borrower isn’t repaying the entire principal from day one. Because the bank values the construction project at each stage, the borrower gets piece of mind that their investment is secure and that the building is going as planned.
There is a lot to consider when thinking about this kind of finance. Talk with one of our expert mortgage brokers in Perth. We can simplify the whole process. We will help you understand the more complicated aspects of construction loans, use our knowledge and contacts to find you the best lender, negotiate the lowest interest rate and help you with the application process. Mortgage Hero will save you on time, stress and most importantly, money.