If you're considering building a new home, it's essential to understand how a construction loan works. In this article, we've outlined the documents required to supply to your lender to gain finance approval and the stages involved in building a new home. Progress payments are required once each step is completed. We trust you'll find this information on construction loans for new homes helpful, so you can begin planning your new home with CJ Homes.

How Does New Construction Home Loans Work?

A home loan for a new construction have rates that differ from obtaining finance to buying an existing property. Most lenders will lend up to 95%, including the lender's mortgage insurance, so you will need to contribute a minimum of 5% of the total land and building valuation plus any additional funds required to complete the transaction.

With a new home construction loan, the lender considers the total amount required to pay the builder to complete construction. This amount is then broken down into 'progress draws or payments. These payments are made to the builder at various stages during construction. Once all payments are made, these will equal the total of your loan.

CJ Homes uses the Housing Industry Association (HIA) contract which requires a progress payment to be made at the completion of each stage. Payments must be attended to promptly to ensure construction stays on track so we can deliver your new home on time.

Construction Loan for a New Home Documentation

Finance approval can take time, and all documentation must be provided to the mortgage broker or lender to facilitate a quick approval. We can only start construction work once we've received written advice that finances are approved.

The following information will clarify what you need to provide for financial approvals. We've also detailed the various building stages for progress payments.

House and Land

For house and land packages, you will need to show two contracts:

A contract to purchase the land will make up a separate loan. Rates can be fixed or variable and will require principal and interest repayments.

A Fixed Builders Contract for the construction of the home. This will make up the construction loan. Most lenders typically offer this loan as "variable and interest only" until construction is complete. After this, the loan will convert to principal and interest repayments.

If you are considering knocking down and rebuilding or already owning the block of land, the lenders will need the Fixed Builders Contract only, as advised above.

Construction Loan Progress payments

Upon approval of your construction loan, lenders will make progress payments throughout the various stages of construction. Progress payments for a home loan for a new construction will typically be paid directly to the builder after each stage. An initial five percent of the total contract price is paid prior to the builder commencing any work including preparing plans and obtaining council approvals.

The building stages for progress payments are as follows:

Stage 1: Slab down or base: Typically, 10 percent of the construction cost is provided to build the foundation of your property. It can cover earthworks, the levelling off the ground, plus plumbing and waterproofing.

Stage 2: Frame stage: This is the exciting stage, as you see your dream home come to life. The progress payment of about 15 percent will enable the frame of your new home to be built. It can cover partial brickwork, roofing, trusses and windows.

Stage 3: Lockup: At this stage, your new home will have external walls, windows and doors, so it is enclosed or lockable. The progress payment of approximately 35 percent will allow the builder to complete this critical stage.

Stage 4: Fitout or fixing: Now, the fun begins with your chosen fitting and fixtures. A further 25 percent is required to cover plasterboards, the part-installation of cupboards and benches, plumbing, electricity and gutters.

Stage 5: Practical Completion: Your dream home comes true. This is the last and final stage, covering all contracted items, typically 10 percent to cover final payments for builders and equipment, as well as any finishing touches such as plumbing, electricity, and overall cleaning. It's important that you conduct a thorough inspection with your builder before hand-over.

Building with CJ Homes

Our New Home Specialist team is happy to walk you through the loan process for construction of  a new home. They are highly experienced in the property and construction industry and can answer all your questions.

They'll also work with you to find the best house design to suit your lifestyle and budget.

CJ Homes has developed a wide range of house designs, including single dwelling, two-storey, split level and acreage designs that can be easily modified to fit the land requirements and meet Covenant conditions. 

CJ Homes has been building high-quality and affordable homes since we began in 2004.

If you haven't sorted out your finances, our New Home Specialists can connect you with mortgage brokers and lenders. Start planning your dream home today.

 

Disclaimer: CJ Homes does not provide any lending or financial services.  Information in the article is offered as general information only.  For specifics on eligibility for loans and types of construction loans, please consult with your lender or mortgage broker. 

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