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  • Building & Mortgages

    I was wondering if anyone can explain exactly how the lending works from a bank when you're "building".

    eg. I buy a section that can be subdivided, and have plans drawn up for 2 houses to go onto the sections. Then I get the houses valued at completion.

    So I then take those valuations along to the bank.

    How does their lending work from then on with progress payments etc?


  • #2
    Hi Regan

    It depends on the lender you go to and the contract you enter into with your builder.
    Most banks require progress valuations showing the value of the work completed and the remaining cost to complete the project (to ensure you're not going to go over budget), and then use this to decide how much you can drawdown at any one time to pay your progress payments, based on their allowable LVR.

    Construction lending can be one of the more complicated lending scenarios and a right nuisance if you get it wrong as no-one wants to refinance a half finished house.

    Depending on which builder you're using and the amount of equity you are investing, there are a couple of alternatives where some lenders will agree to the total loan amount based on your initial valuation, and then simply follow the builders payment schedule.

    I would suggest speaking with an experienced broker who specialises in construction as it can be a bit of a mine field. A local banker will likely fob you off as construction loans are paperwork heavy and they get no extra reward for doing them.. and thats if they have the answers in the first place!

    Personally, I'd just give Ian Webb from New Build Finance a call and let him talk you through it.


    • #3
      Hi reagan,

      Waveindigo is correct, construction loans are one of the most complex and complicated loans you can get.

      There are many different construction lenders out there, all with slightly different tweaks to their loans. It depends a lot on how involved you want to be in the process. You could go to a bank yourself and do all of the work(and probably find you will have to pay for a updated valuation from a valuer at each draw down stage) or get an experienced broker to sort out a construction loan in which you will only have to initiate the loan process, and the rest is done for you.
      Scott Miller - Mortgage Broker
      Ph: 03 980 4541 M: 021 34 36 48
      AMS's website My email


      • #4
        New Build is probably the best construction finance product on the market and is especially good if it is your first time using construction finance.
        For property financial solutions
        CALL 021300192 or [email protected]
        Click HERE to be added to my Advanced Property Finance Newsletter