Home loans that could give you the flexibility you need if you are building a new home or doing a major renovation.
Home loans for construction are a home loan option designed for people who are building a home from scratch or undergoing a major renovation. They give the borrower (owner occupier or investor) the flexibility to draw down their home loan in stages, as the project reaches certain milestones.
The construction option is not a separate loan, it’s a feature available on the RAMS Full Feature, Fixed Rate, Fixed Rate Classic and Essential home loans. It could give you the added flexibility you need if you’re building a new home or doing a major reno.
With a standard home loan, home buyers usually draw down the full amount they are borrowing to pay for their new property. They begin making loan repayments and pay interest on the full amount owed.
With a construction loan option added to your home loan, instead of borrowing the full loan amount as a lump sum at the beginning of the loan term, you draw down in stages and make progress payments to the builder as each pre-agreed milestone is met.
You only pay interest on the amount that has been drawn down through the progress payments that have been paid – not the full loan amount.
Once you have a plan for your new home and have found a reputable, licensed builder to help you do the job, you might consider applying for a home loan for construction. The application process may vary between lenders. Typically, you’ll need to apply and get approval before the builders start work:
As well as the regular home loan application information, you’ll be asked to supply documents outlining the renovation or construction process and to help estimate the value of the build at completion. The information you will need usually includes:
Note that if your project requires funds upfront, for example, for your builder or architect to issue building plans, you’ll need to cover these costs yourself.
If your documentation is in order and you get loan approval, the lender will issue an ATC certificate. This means work on your dream home can start. Some builders ask for a deposit before starting. In many cases, this can be released up-front as part of the construction option.
Only after a stage of the Progress Payment Schedule has been satisfactorily completed will the lender release that stage’s funds to pay the builder.
The specific stages of the Progress Payment Schedule will depend on the type of work undertaken. When building a new home, the stages of construction might include:
Before the final set of funds can be released, your lender will want to be sure specific build criteria have been met. With RAMS, that means final payment is subject to an ‘at completion’ valuation (done at no cost to you), a Certificate of Occupancy, as well as a comprehensive building insurance policy.
If you’re looking to work out the costs of your construction project or renovation, we have two calculators that could help:
A construction loan option on your home loan could help maintain cash flow for your builder and keep the project’s funding on track, giving you:
It’s important to remember that even with a construction option, you’ll still be charged interest for the full loan amount that’s owing on the property or land itself.
Remember, you’ll still need to pay a deposit – just like you would with a standard home loan. At RAMS, the maximum loan-to-value ratio (LVR) for a home loan is 95%, but at that level, you will need to pay lenders mortgage insurance (LMI).
Building your first home, dream home or doing major renovations on your property is a big project, but it can be rewarding. Whether this option is right for you depends on your personal and financial situation – it’s a good idea to seek professional advice before you get started.
The construction option is available on many RAMS home loans and it can be used for:
RAMS does not offer construction loans to Owner Builders, for Kit Homes, builders’ spec houses, project finance or developments.
For more information see our construction FAQs.