Construction Loans in Australia Explained [4 Massive Mistakes]

Construction loans are a great alternative for a borrower to obtain financing rapidly in order to build a home. That being said, you need to make sure that you are filing your application properly so you don’t get rejected. A valuation will not decline your loan, it can kill the deal though if you do not have enough funds to complete. If your valuation comes in at $50,000 less, but you have this extra money then there isn’t a problem and the deal proceeds as normal. If you do not have these funds, then the deal will not be declined, but you may need to pull out of the deal if you have a shortfall in funds.

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Why do Construction Loans have a Different process?

Banks changed their methodology regarding the acceptance of applications for construction loans. People found themselves in an unprecedented situation, one unlike anything they had ever seen before. It was only through trial and error that people were able to learn how to crack the code. One thing to take note of is that lenders will usually analyse the same factors as any other loan, but you do need to make sure that you have a good broker as they will be able to help you navigate the process a little easier.

Tell the valuers what they need to know to get a great result

If you happen to be in a new estate, then the bank will have a very hard time valuating your property. The valuation report is quite difficult to work with. One way to explain it would be if when a property is completed, the price it is sold for is the price that it is worth. If you see a property that is a new development, then you may see that there are no properties in the area that have been completed yet. The last 6 months will be taken into account, and this can put you in a bit of a bad situation. Luckily, there are ways to avoid this. 

One way would be for you to offer the valuator the sales history from the next suburb. This gives the person who is valuating the property some kind of context, and it also gives them a solid foundation to work from. Ideally, you need to be proactive, and you need to do it upfront. When the report has been completed, it’s very difficult to go back and make changes. If you can be hot out of the gates, this will give you the best chance of getting the result you’re looking for. If you need help with this process, reach out to us and we will be happy to assist you. 

Don’t rush anything

If you have made the decision to build a brand-new home, then you need to avoid rushing any steps in the process. Slow down, take your time when making big decisions and don’t feel pressured. If you can do this, then you’ll soon find that it is easier than ever for you to keep a cool head and to avoid rash and poorly thought-out choices. 

Now, you may be thinking, that when you buy land, you need to be as fast as possible. Sellers in Australia generally want the process to be completed as soon as possible, usually 30 days from the date of the contract. It’s your job to change this. Have your settlement terms and your finance terms lined up with your construction. 

In other words, instead of owning your land first and then applying for loan approval later, you’ll be able to get approval for both the land you want and your loan at the same time. This is difficult, as you’ll need time to give your builders the chance to prepare your fixed contract, specifications, and plans. That being said, the end result is well worth it.

Focus on essential data

The valuers who work with the bank will have their own set of data to look at when completing their valuation. This comes down to the number of bathrooms, bedrooms, and car spaces you have. The size of the block and the floor area will also be taken into account. If you want to boost the value of your to-be-built home, then you need to increase these numbers as much as possible. If you want to have a study in your home, don’t build a study. Invest more and build a bedroom. You’ll see the price rocket, even though the number of rooms is the same.

Take into account variations

Lastly, one issue that people have is that they rush to try and get all of their plans to the bank. They then change the plans, and they make the process take way longer than it should. In most cases, when the bank does approve your loan changes, the contract will have you paying the bill. Take it slow, finalise your plans, consider any potential variations and anticipate them. 

What’s next?

If you can follow this guide, and if you can take it slow and steady when it comes to the process, then you’ll find that you get the construction home loan you need and that you are also far more likely to get the whole thing finalised sooner. Rushing will make things take longer, and the sooner you can adopt this mindset, the sooner you’ll be able to reap the benefits. 

Contact us if you want to find out more about this topic. At Capta Financial, we guide you through your lending journey, to help you find the most suitable lender for your needs. We offer a free assessment, and you can also book a meeting using our booking system.

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