Financing your Construction or Renovation

Laying the groundwork for a brighter future? For many people, the ability to build a new home tailored to their preferences is an ideal situation. For others, renovating their current home to better suit their lifestyle can make all the difference.

Choosing the right construction or renovation loan.

Here at Finance Industries we can help you to finance buying land, building new homes, purchasing off-the-plan and house & land packages.

You have a few options when it comes to finance. When building a new home, a construction loan is worth considering. Depending on the size of the renovation you may be thinking about refinancing your home loan or taking out a personal loan. At FIA we talk you through your options and find the right loan for you.

What is a construction loan?

A construction loan is finance specifically for the construction of property. It is paid in instalments as the work is completed. Borrowers will generally need a deposit and provide detailed plans of the construction work to be completed when applying. The loan is then secured by the property being built.

What is the difference between a home loan and a construction loan?

A home loan generally consists of a single payment upfront at the settlement of a property. A construction loan works differently. It consists of payments at various stages of the construction as it is completed, known as progressive drawdowns, paid directly to your licensed builder.

Often a construction loan will offer interest-only repayments during the build and convert to a principal and interest repayment once the construction is complete. This means that you only make interest repayments on the funds that have been drawn down at any time.

How can I finance a home and land package?

Generally, buying a house and land requires two products. They are processed separately but can be bundled together. The land purchase is similar to a regular mortgage and then the finance for the home is usually a construction loan.

How do construction loan payment instalments work?

Before the property construction begins, the builder will prepare a document that lists the overall cost of the project along with a breakdown of the stages that will form the schedule of payment. The builder then issues an invoice at the completion of each stage. The lender may choose to send someone to the property to check the construction is progressing as stated.

Often the stages will be:

• Slab – laying the foundations.
• Frame – construction of the frame, roof, windows and some brickwork.
• Lockup – installation of outside walls, doors and windows.
• Fit out – installation of electricity, plumbing, gutters and plasterboard.
• Completion – final touches are made including final electricity, plumbing and cleaning.

What deposit do I need for a construction loan?

The amount you will need as your deposit depends on the lender. Generally, most lenders want a 20% deposit, however, you may be able to pay less, however this usually requires you to pay lenders mortgage insurance (LMI).

What are my options for a renovation loan?

The type of renovation loan that is right for you depends on the size of the project. If you do not have the money to fund the project outright, we can talk you through the following options to find the right one for you.

Your options could include:

• Refinancing your home loan to leverage equity in your property.
• Applying for a construction loan if it is a large renovation project.
• Finding a competitive personal loan.
• Cashing in investments, redrawing from your home loan or using savings/offset.

Thinking of building or renovating your new home? Come and have a chat with the FIA team, we’d be happy to talk you through your options, that will offer you the support needed to set strong foundations.