What You Need To Know About Construction Loans

Unless you’re one of the rare people on this planet who have the ability to pay for the construction of a new home out of pocket, you’ll probably start looking around for loan opportunities about the same time you make the choice to purchase a house and land package. Many people use the terms “construction loan” and “mortgage” interchangeably, but this is incorrect. They are two completely different things and should always be treated as such. If you’re looking into building your dream home, there are a few things about construction loans that you need to know.

Newly Constructed House Mimosa Homes
Newly Constructed House Mimosa Homes

What is a Construction Loan?

As its name suggests, a construction loan is a monetary loan associated with what it costs to build your brand new home. A construction loan covers everything – from the money that it takes to purchase the land your house will sit on to the construction of the house all the way through to completion. This is different from a mortgage in that a mortgage only covers the cost to purchase a home and leaves nothing for added renovations or additional construction.

How is the Money Used?

Generally speaking, money is drawn against a construction loan at a few different points in the lifecycle of the project. After you deposit the money (the amount of which will be decided based on the plans that you’ve finalized with your home builders and contractors), money will usually be drawn when the flooring is laid, when the walls are erected, when the house can be properly secured and when the project is actually finished.

How do You Get a Construction Loan?

In order to qualify for a construction loan, you will need to prove a few specific things with your financial institution of choice. You’ll need to provide documents that support the entire project from start to finish – from the amount of money it will take to secure the land to the timeframe of construction to the cost of materials and labour and more. You’ll also need to provide a contract for the sale of the land and a fully documented building contract. This will include drawings, schematics and anything else that you can provide. The bank will also usually require a valuation to help make sure that their math lines up with yours.

House and Land Packages

House and land packages are designed to simplify the new home building process, allowing you to purchase both the land and the house that will eventually be erected on it at the same time. Mimosa Homes offers packages in many of the most well-developed neighbourhoods around Melbourne’s North and Western suburbs. Not only do you get to pick the land based on the type of home that you’re looking for, but you also get to finalize the design with full input before construction begins. House and land packages in Melbourne’s West and other areas allow you to take complete control over every part of the process, virtually guaranteeing that the home of your dreams becomes a reality in the most efficient way possible.