If you require further information after reading this guide, please refer to your loan contract terms and conditions for further information.
Specialist Construction Loan
How does a construction loan work?
With a standard home loan, all required funds are advanced at settlement by paying a purchaser, for example. However, with a construction loan, we will usually retain all of the cost to construct your property (this is usually the fixed price building contract amount).
Construction funds are progressively drawn down at each stage of construction.
Each progress drawdown is referred to as a "Progress Payment". Progress payments are made directly to the builder once an invoice has been provided.
If we are only funding a portion of the cost to construct your home, you must contribute your own funds before you can draw down the loan funds. Similarly, funds retained for construction cannot be used towards the purchase of land.
Payments you must make during construction
Whilst the loan is in the construction phase the interest is charged on the 15th of each month and the repayment is due on the 2nd of the following month. Statements are issued to the borrower's postal address on the 15th of each month to confirm the payments that are due on the 2nd of the following month. Once the loan converts to a P&I product the statements will be issued half yearly.
What do we need before we make the first progress payment?
The builder must provide the following information to our Customer Service team before the first progress payment:
The below documents are commonly referred to as the Permit Pack.
- Copy of stamped council approved plans and specifications
- Copy of Builders All Risk Insurance (either on insurers letterhead or certificate of currency)
- Copy of Owners Warranty Certificate
- An authority from you to pay the builder
The Lender may release a maximum 5% of the building contract at settlement if you have already paid that to your builder. You will need to give us a receipt of that payment.
When are progress valuations required?
Generally, we will arrange for a valuation for base, frame, lock-up and completion stages to ensure that construction is on track. However, if the construction contract is outside HIA standards, a valuation will be ordered before all progress payments are made.
How can I request a progress payment?
You will need to provide the following information to our Customer Service team (email@example.com) prior to paying your builder at each completed construction stage:
1. Progress Payment Claim Form signed by borrower(s) authorising the payment.
2. Copy of builder's progress claim or invoice.
Note: We will only advance funds for works that have been completed. The Lender will not advance funds for materials purchased or delivered on-site but not incorporated into the structure.
What do we need before we make the final progress payment?
Please provide the following information once construction is completed:
1. An Occupancy Permit, acceptable to the Lender in respect of the building works, and any other permission that is required by any relevant authority in relation to the occupation of the land (not applicable in SA or WA).
2. A Building Insurance policy or Certificate of Currency for an amount not less than the value of the completed building.
Once you provide the above requirements we will arrange for our valuer to conduct a final inspection and make the final payment.
Who can I contact and where should I send my documents?
Our Customer Service team is here to help and can assist you with submitting the relevant information and forms we require. We are also available to clarify any questions you have regarding the building process. Please contact us, we are here to help.