5 steps for construction loans

Construction loans are used to finance the progressive payments of your
building costs as your home is constructed.
While there are many variables, the construction loan process can be
summarised in five typical steps.

Step 1
Pre-approval of finance for land and construction
Obtaining pre-approval of finance for the land and construction is an
important first step. You want to be sure you can obtain the finance to
complete the entire project, before committing to the purchase of land
and builder’s contracts.

Step 2
Purchase of land
The purchase of the land is formally approved and settled with the
lender. Your loan is now activated.

Step 3
Sign builder
You select the builder you wish to use and sign contracts. The finance
for the construction is now formally approved with the signed builder
contracts, and construction commences.

Step 4
Construction and progressive payments
The construction of your home is now underway. Rather than pay the
entire builder costs upfront, your construction loan will be structured
for the lender to make progressive payments to the builder, at specific
stages identified in your building contract. Typically there are four
stages for a single-storey property: slab down, walls up, roof on, lock
up, completion, but this can vary. The lender may conduct inspections to
ensure the work has been completed.

Step 5
Your home is now complete. The construction loan now typically reverts                                                                                                                                            a standard home loan.


To obtain approval of finance, typically you will need to provide the following                                                                                                                                     documents:

  • Fixed Price building contract with a licensed builder
  • Proof of builder’s insurance
  • Proof of council or planning permits

Need help? Let’s chat about what is best for your personal circumstances.  You can contact me on 0407 756 650 or email rscherlies@smartline.com.au