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Most of the lenders we work with offer a wide range of construction loans with
interest rates and loan features similar to regular home loans. This type of
loan can finance up to 100% of hard costs or up to 80% of the finished home
value.
Whereas the purchase of an existing property needs to be paid for up-front, a
construction loan is received in stages.
Firstly money is lent to cover the purchase cost of land. Then money is paid
to the builder to commence work, and as construction progresses, further
instalments are advanced to cover materials and labour.
Lenders will require an inspection to be conducted by their representative at
the completion of each construction stage before funds are advanced.
Because funds are advanced in stages, interest is only calculated on the sum
advanced at any given stage of the process – not the full amount to be
borrowed.
Additional fees and charges generally apply to cover the costs of building
inspections by the lender. Generally lenders are reluctant to accept building
applications from ‘owner builders’. In most cases, a fixed period and fixed
amount building contract from a registered builder, would be required by the
lender.