Are you planning to build a new home?

Constructions loans are very different to a typical home loan and you need to know how they work before committing to a building contract.

The full loan amount is divided into several payments or “drawdowns”. Each payment is made by the lender to the builder only after a certain stage in construction has been reached.

There are usually five or six stages to a typical construction loan. As each stage is completed, your lender will send around a valuer to inspect the property, and make the required checks in order to validate the next payment release. It’s a good idea to choose a lender that requires you to authorise each payment to the builder so you have some control over the process. This will help to ensure that if your home is not completed to certain standards your builder will not get paid until it is.

In addition during the construction phase you are only required to make interest payments on the funds that have been used.