So you are going to build your new home. Are you prepared? We hope so as it is not as easy as it first seems. One of the first things to do is secure the money required for your construction. A construction loan is very much like a normal home loan except for one thing, a construction loan is not paid out in one lump sum like a normal home loan but in staged payments. These staged payments are made at key events in the construction of the project. The final payment is made on completion of the project.
Construction loans generally have the same interest rates as normal home loans however during the construction process the borrower is only required to pay back interest only payments and does not start paying principal until after the final payment of the loan has been made. The interest only payments are based on the actual money released so far and not on future money.
In order to secure a construction loan for your project it is important that you provide your lender with an estimated value of the completed property. This means enlisting a professional valuer to analyse your plans and estimates from your builders and give a professional estimated value of the final project. These values when submitted to your lender should help you secure your loan quicker.
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