Property Finance - types of home loans - construction home loan - part 2
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Understanding construction home loans & construction loans and how a construction loan can change through the 3 Phases of construction loan. The video explains some construction loan basics that the client must understand and finally the video goes into discussing the 4 Steps to construction loan. The video also discusses two examples of a construction loan, namely, a construction loan when a land is purchased initially and then construction is commenced and later the construction loan is converted to either a property investment loan or a normal home loan. In the second example, the construction loan is given as a house and land package and the entire loan is clubbed into one construction loan. Check out the video for detailed examples. For all your PROPERTY FINANCE, HOME LOAN & PROPERTY DEVELOPMENT needs, visit www.positivepropertypro.com.au or call Amber on 0488 998 072 SUBSCRIBE for more PROPERTY FINANCE TIPS & PROPERTY INVESTMENT EDUCATION & KNOWLEDGE https://www.youtube.com/PropertyFinanceGuru SUBSCRIBE to our mailing list http://goo.gl/okk8S1 Google+ ► http://gplus.to/amberkhanna Linkedin ► http://www.linkedin.com/in/AmberKhanna Twitter ► https://twitter.com/Amber_Khanna Facebook ► http://facebook.com/PositivePropertyPro Google+ ► https://plus.google.com/+PositivepropertyproAu/ Google+ ► https://plus.google.com/+PositivepropertyproAu_PropertyFinanceGuru WWW ► http://www.positivepropertypro.com.au
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Property Finance - types of home loans - construction home loan - part 2
- 2. Property Finance – Construction Home Loans • Helps you cover the construction period, usually for a maximum period of 12 months. • Stages of Construction – Base Stage or Slab Stage – Frame Stage – Lock Up – Fit Out or Fixing Stage – Practical Completion • One construction is completed, you can revert to a normal home loan.
- 3. 3 Phases of Construction Loan 1. Land Acquisition – LVR can range from 60% - up to 95% 2. Construction Loan – Planning Permit – Building Permit – Fixed Priced contract with the builder – On Completion valuation 3. Post Completion – Switch or revert to another predefined loan • Condition: Construction to commence within 12 months.
- 4. Construction Loan Basics • Client only pays interest on the funds actually used. • Interest only payments until construction is completed whereupon it converts to principal + interest (either variable or fixed). • Client must use their own source of funding initially towards the purchase of the land & if FHOG is used, it typically goes towards the first progress payment. • LVR can be up to 95% of “on completion” valuation. – Most lenders only lend against the price of land + cost of construction, however, some will refinance the house and land as a package.
- 5. 4 Steps to construction loan 1. Loan application to purchase a vacant block of land – Max LVR 95% – Pre-Approval requested 2. Builder Selection – Builders Certificate – Home Owners Warranty Insurance – Fixed price contract – Builders schedule of progress payments 3. Progress Claims by the builder 1. Base Stage or Slab Stage 2. Frame Stage 3. Lock Up 4. Fit Out or Fixing Stage 5. Practical Completion
- 6. 4 Steps to construction loan 4. The lenders valuer / QS will typically make only two inspections, one at mid-construction and one on completion. Once he has made his “on-completion” inspection, the client must make his inspection and give authority to the lender to make the final drawdown from the loan to the builder.
- 7. Examples • Assumptions – In both instances the clients are first home buyers who qualify for FHOG. – Clients have a contract of sale and full plans and specifications for building. – The clients have genuine savings to put towards their project and have additional funds to cover miscellaneous costs.
- 8. Purchase Vacant Land & Begin House Construction within 12 months.
- 9. House & Land Package
- 11. Contact • Home Loans • Property Finance • Mortgage Broking • Construction Finance • Property Development • Property Development Finance • Any kind of finance, including car loans, personal loans etc • Call – Amber @ 0488 998 072 • www.positivepropertypro.com.au
Notas do Editor
- Of all the loans, construction loan is perhaps the most complicated, as through the course of your acquisition, building and then holding your investment, the loan usually switches from one option to another. A Construction Helps you cover the construction period, usually for a maximum period of 12 months. A typical construction would go through Base Stage or Slab Stage Frame Stage Lock Up Fit Out or Fixing Stage Practical Completion During these stages of construction, the lender lets you progressively forward payments to your builder. Which in turn saves you Interest, as during the construction phase interest is only calculated on the drawn down amount & not the entire amount.
- There are 3 phases of construction loan Land Acquisition LVR can range from 60% - up to 95% Construction Loan, which requires you to have Planning Permit Building Permit Fixed Priced contract with the builder & an “On Completion” valuation Post Completion The loan switches or reverts to another predefined loan & the only condition is that Construction must commence within 12 months.
- Some of construction loan basics to remember are: Client only pays interest on the funds actually used i.e. the drawn down amount. Interest only payments until construction is completed whereupon it converts to principal + interest (either variable or fixed). i.e. during construction, all you pay on a monthly basis are interest only payments. Client must use their own source of funding initially towards the purchase of the land & if FHOG is used, it typically goes towards the first progress payment. LVR can be up to 95% of “on completion” valuation. Most lenders only lend against the price of land + cost of construction, however, some will refinance the house and land as a package.
- 4 Steps to construction loan The First thing to do is to acquire the land. The max LVR on acquisition of land is up to 95% & it is always good to have a pre-approval, so you know your limits. Second thing to do is to finalize a builder, Get his Builders Certificate The builder must have Home Owners Warranty Insurance to cover your build. It must be a Fixed price contract & you also need a Builders schedule of progress payments Which is nothing but a list of all Progress Claims by the builder Basically what he is going to invoice you for at: Base Stage or Slab Stage Frame Stage Lock Up Fit Out or Fixing Stage Practical Completion & so on.
- As the construction progresses and before the draw downs, the lender will have their own inspection done to determine the progress and you will also have to authorize the lender that you are satisfied with the progress and it can release the funds to the builder for the invoiced amount.
- To wrap everything up, I have included two examples to explain the construction loan process. In the examples, I have assumed In both instances the clients are first home buyers who qualify for FHOG. Clients have a contract of sale and full plans and specifications for building. & The clients have genuine savings or deposit to put towards their project and have additional funds to cover miscellaneous costs.
- Lets say the land value is $250,000 & @ 90% LVR, the client can borrow $225,000, therefore they require a deposit of $25K Total construction costs are $200K Giving us a total of $450K which includes both construction and land value. In this scenario, Client will submit 1 loan application for purchase of land. Once construction is ready to commence, the loan on the land will be rolled into a new loan account and the loaned amount for the land + the construction loan will be combined into 1 loan account.
- Another similar example, However, In this scenario, the client is required to submit 1 loan application that covers both the house and the land as a package. So together for land and construction – total value is $450K & at 95% LVR, the client needs a deposit of $22,500
- I hope you found this video informative. Please give us a chance to help others understand the confusing world of finance and home loans, by subscribing to our channel.
- & if you ever need any kind of home loan, construction loan or property finance, please give me a call. Check out the the links to our website & other ways to connect with me personally in the description of this video. See you next time.