Financing the construction of your new home

Financing the construction of your new home

Financing the construction of your new home

Equally important to selecting the right builder is finding the right finance to fund your new project. Financing the construction of your new home or a major renovation can differ from financing the purchase of an existing home.

A question that’s often asked is, “How do I arrange finance for the construction?”.

Whatever your circumstances, consider professional advice from those who know, so contact your broker or banker.  A brief summary of 5 ways of financing construction of your new home is provided below.

Construction Loan  

Are generally used when you do a major renovation or build a new home and your financing terms are different to that of purchasing a residential property. The major difference is that your loan is drawn down in stages during the building/construction process rather than as a lump sum at the beginning. The major advantages of a construction loan are that it provides you with protection as the builder is paid in stages and you only make repayments on the amount drawn down. This lowers your repayments as they are generally interest only during the construction period.

Professional Package Loan 

If you considering a boutique home build you can make use of a Professional Package Loan option. A packaged home loan, generally combines a home loan with other financial products – usually a transaction account and in a number of cases a credit card. You can expect fee waivers plus a discount on the home loan interest rate on some or all of the packaged products. The discount on the interest rate usually lasts for the life of the loan. There is usually an annual package fee, so do your calculations on the fee savings and rate discount verses the annual package fee.

Low Doc Loans

If you are self-employed, you may not have all the documentation lenders usually require for the loan application. A Low Doc loan might suit your circumstances and may be a great way to secure the funds for a custom-built home.

Equity Loans

A home equity loan allows you to borrow against the equity you have in your home to invest in shares or property, repay your debts, renovate or pay for lifestyle expenses. This option may be used to fund your dream custom built house or investment while retaining your current property.

Bridging Loans

Looking to buy or build your new home but you’re still waiting to sell your old home? A bridging loan might be a good option. A Bridging Loan is when you require finance to purchase a second property with the intention of selling the existing one. A bridging loan is typically an interest only home loan with a limited loan term.

Related Articles