If you are about to build a new home or erect a building you may
need to fund the construction by taking out a
construction loan. Do construction loans
work the same as regular loans? The answer is yes, the loan is assessed in much the same
way as a normal house loan. However there are a few differences to note.
A construction loan payments do not happen at once, in a lump some that a normal loan may
require. The payments of a construction loan are usually made a certain stages of the
building. These payments are called
progress payments. The final payment is usually
made on completion of the building work.
Interest rates for construction loans are usually the same rates as those of housing loans.
It is common when making progress payments that the payments made are interest only and the
interest is based on the released monies only.
Before a lender will lend money for construction or building work it may be necessary to
employ a valuer to give an estimated value of the
completed building. The minimum a lender
would require is council approved plans and cost analysis and estimates from builders
before a loan would be granted.
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