Securing finance is often the most stressful step in building a new home.
Carlisle Homes’ financial advisors can help you secure a tailored construction loan with interest-only repayment options, so you can collect the funds you need to complete each step of the construction process without straining your budget.
What is a construction loan?
Designed specifically for the home building industry, construction loans dispense funds in instalments to cover each stage of your construction project. The total value of the loan is tied to the total cost of the construction, which is why lenders typically expect a fixed-price plan before approving a loan.
Typically, you’ll only have to pay interest on your home loan balance during construction, and then switch to paying interest and principal once construction of your new home is complete.
How does a construction loan work?
Whereas typical home loans and mortgages make the sum of your loan available immediately, construction loans are tied to the progress of construction projects, and only release capital as necessary to complete each project stage. The lender makes these progress payments directly to the builder — Carlisle Homes, in this case. The key benefit of a construction loan is that it allows your home build to progress efficiently and seamlessly.
What does a construction loan cover?
As you might expect, homes are built in stages. Each stage brings with it a diverse set of costs, including council fees, contractor fees and materials costs. These costs must be paid fully and on time to ensure your home’s construction period concludes when we agreed it would. We, the builder, will liaise directly with your construction loan lender to set up a progress payment schedule to match our expected build timeline. By working directly with them, we can provide the assurances they need to release capital.
The costs that construction loans typically cover include:
- The pre-site stage: design fees including your colour selection process, council permits and insurance.
- The construction phase: site clearance, concrete base slab and footings; framing; lock-up; and fixings where insulation, roofing, doors, windows, cabinetry, and much more, are installed
- The completion phase: final payment for house painting, rendering and tiling, plumbing, electrical, cabinetry, final touches, and a final site clean.
How much can you borrow for a construction loan?
The capacity of your construction loan is based on the value of your fixed-price building contract. Because Carlisle Homes offers set-in-stone prices, you’ll find that most lenders will cover the total construction cost. Our house designs range from mid-$200K to high-$500K, so that’s what you can expect to borrow.
What is the interest rate for a construction loan?
Construction loan rates vary between 5% to 9%, depending on your lender and the current market interest rates. However, they can jump higher.
Construction loan interest rates tend to be higher than home loan rates. Lenders do that to account for the risk they’re taking — it’s easier to value a home that’s been built compared with one that only exists in your dreams. The good news is that you’ll be able to make interest-only payments for the duration of construction.
Construction loans tend to allow interest-only loan repayments during construction, with the principal due only after the lender is satisfied that construction is complete and that you have moved into the home.
Do you need a deposit for a construction loan?
You do need to pay a deposit to secure a construction loan. The value of that deposit will depend on your lender. You can typically expect to pay a 10-20% deposit for your construction loan, which is in line with most home loan deposits.
Do you pay LMI on a construction loan?
Before approving your construction loan, your lender will conduct their own assessment to determine the ultimate value of your yet-to-be-built home. If you secure your loan with a deposit of less than 20% of their valuation, they may ask you to pay Lenders Mortgage Insurance (LMI) to cover their risk.
Does a construction loan include land?
Construction loans can cover the cost of the land for building a new house. Carlisle Homes offers a range of house and land packages that will satisfy lender criteria.
If you’re interested in building your new home within a land estate, then exploring our fixed-price house and land packages is well worth your time. We have secured exceptional blocks of land at a range of incredible estates across Metropolitan Melbourne and Geelong. And, with fixed prices and transparent construction timelines, we’re confident your preferred lender will be more than happy to cover both the construction and land-purchasing costs.
How to apply for a construction loan?
If just the thought of applying for loans gives you a headache, we’ve got good news — our specialist loan and finance team can guide you through the entire process, from comparing loan products to applications.
1. Select your construction plan
The first step is a consultation with our design team. The goal is to help you choose a house design or home and land package that meets your needs. Choose a plan, and you’ll have a fixed price that we can take to a construction loan lender.
2. Review loan products
Our dedicated team of in-house financial advisors and mortgage specialists are ready to help you discover and compare loan products. Research is critical at this stage, and we’ll do our due diligence to find a construction loan that fits your budget and needs as best as possible.
3. Gain loan approval
Now that we’ve discovered your preferred loan provider, we’ll contact them with you to discuss their approval criteria. We are committed to making your home-building experience as smooth as possible, so we’ll happily provide your lender with everything they need to approve your loan as soon as possible and at the highest value possible.
4. Construction begins
We’ll provide your lender with our expected construction schedule and will keep them updated on running costs at each stage of construction. We can even break down the percentage of the build price we’ll need at each stage so that they can be prepared on their end to pay it out as needed. If all goes to plan, which we’re sure it will, this should be a seamless process.
What you need to apply for a construction loan
- Proof of identification
- Proof of income and existing assets
- Details of financial commitments
- Proof of council approval for construction
- A Carlisle Homes fixed-price contract
- Progress payment schedule (which we will provide)
- Construction insurance and contingency plans (which we will provide)
Secure your construction loan with Carlisle Homes
Carlisle Homes’ in-house construction finance experts can help you compare loans to find the perfect one for you.
- Specialists in construction home loan finance
- Free, no-obligation financial advice for home building
- MFAA-approved brokers
- Finance solutions for first-home buyers and experienced property investors
- Save yourself time, money and a headache
Discover construction loans Melbourne homeowners trust
Ready to explore construction loan options? Let’s set up a consultation. We have helped countless families by easing their budgeting anxiety and letting them focus on the joy of designing their dream home and watching it all come to life. Give us a call today, or fill out our quick form, and we’ll be in touch shortly.