Do I have to get separate loans for land and construction?

[Timonthy]

Hi,
My partner and I are looking to purchase land and build a house to live in it. Our combined income is around $135,000 and we are aiming towards building towards a $500,000 to $800,000 house. Do I have to get separate loans for land and construction?

[Otto Dargan]

Hello Timothy.

Thank you for reaching out to us and welcome to the forums.

Since you are looking to buy land and build a house to live in it is advisable to split the loan into a land loan and a construction loan.

By doing so, the loans will be advanced to you during the different stages (when buying land and when building the home) since it is considered as two separate loans.

When purchasing land, you need to meet the following requirements to ensure you’ll be able to access the equity at a later stage:

• Location: It’s important to choose a location that is either in a major city or town or at least close to one.
• Services: The land must be connected to the electricity grid and have access to town water or tank water as well as sewerage services.
• Size: The land must be no larger than 50 hectares – only a few lenders will consider land sizes larger than this.
• Access: There needs to be easy access to the land via a road. As long as it’s well maintained, dirt roads are usually ok.

With some of our lenders during the construction phase, you pay interest-only on the drawdown amount. Moreover, with one of our lenders, you pay interest-only at P&I rates.

Give us a call on 1300 889 743 or fill in our free assessment form to find out if you qualify for a land equity construction home loan.

Cheers,

[Timonthy]

Thanks for the information. I’m assuming this also means I need to provide additional documents for construction also.

[Otto Dargan]

Hi Timothy,

After you get approved for your construction loan, the bank will assess your financial situation by looking into your recent payslips, savings for the last 3 to 6 months, recent tax return and your deposit size.

Besides looking into your financial situation, you will need to provide the following documents for a construction loan:

• A building contract that will detail the building stages, drawdown schedule, how long the construction will take and the final price of the build.
• A building plan that gives the valuer an idea of the nature of the property you're building. The plan does not have to be council approved at this point.
• Building specifications give the bank an idea of the quality of the materials, appliances and workmanship involved in the build.

Further documentation is required before you make your first payment including drawdown schedule, the builders’ insurance details and final plans to be approved by the local council.

Cheers,

[Timonthy]

Thanks for the info. Could you elaborate more on drawdowns?

[Otto Dargan]

Hi Timothy,

Unlike a standard home loan, construction loans are drawn-down (there is a repayment schedule to make construction progress payments.)

Basically, you are asking your lender to pay your builder for the part of the construction work that is completed. Usually, five payments have to be made at each stage of construction.

Before the lender allows you to begin construction, you and your builder will need to provide them with the following documents:

• Signed building contract.
• Council approved plans.
• Construction certificate (NSW) or Building permit (VIC) or Decision notice (QLD).
• Builders Insurance (certificate of currency).
• Builders Indemnity / Public Risk Insurance ($5 million minimum for most lenders).

It is recommended that you send these documents to the lender 2 weeks before construction starts to give them sufficient time for processing your mortgage.

We specialise in construction loans.

Give us a call on 1300 889 743 or fill in our free assessment form to find out if you qualify.

Cheers,