Construction loan docs to release first lot of funds

Any general questions you might have in regards to loans and finance.
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Otto Dargan
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Re: Construction loan docs to release first lot of funds

Post by Otto Dargan »

Hello Shraday. Welcome to the forums.

To release the first lot of funds to your builder, you will need to provide the following construction loan documents to the lender:
  • A signed building contract: The finalised building contract must be signed and dated by you and the builder before it is provided to the lender.
  • A Quantity Surveyor report: Generally required for properties valued at more than $1 million, the lenders may require you to provide them with a quantity surveyor report.
  • Council-approved plans: Council approval can take anywhere from 42 to 100 days depending on your state and council so it may be a good idea to get on this sooner rather than later.
  • Evidence of builders insurance: Although it varies between states, builders are typically required to have Public Liability Insurance and Home Warranty Insurance.
The bank will give you the authority to proceed once you've provided the above documents. Don't start construction until you receive the authority letter because banks don't like to finance something that is partially built.

Cheers,
Otto
Otto Dargan
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P | 1300 889 743
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Otto Dargan
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Re: Construction loan docs to release first lot of funds

Post by Otto Dargan »

Hi Shraday,

Here are some tips that you may find useful:
  • Choosing the right builder is key: You can check out our tips on choosing the right builder to avoid regretting later on down the track.
  • Provide your construction loan documents upfront: If you give the bank everything in one go, you can avoid a lot of going backwards and forwards, which can cause delays, particularly with the valuation.
  • Make sure to provide the final version: You can just get a pre-approval and not a formal approval if you aren't able to provide the bank with a finalised tender. This is because the bank will have to send a valuer out to the property again and reassess the valuation even if the costs change just by $100.
  • Be careful of overcapitalising: Overcapitalising is actually spending a lot of money essentially trying to build the best house in the street, which is okay. However, banks may undervalue it and not lend you the amount you need to actually finance the construction.
  • First Home Owners Grant (FHOG): You should apply for the FHOG, if you're eligible, at the same time you apply for a construction loan.
We have mortgage brokers who specialise in construction loans. If there's anything more you'd like to know, you can discuss it directly with one of our mortgage brokers by calling us on 1300 889 743 or by enquiring online.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

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Otto Dargan
Mortgage Specialist
Posts: 7730
Joined: Sat Sep 06, 2008 5:55 pm
Location: Sydney, Australia
Contact:

Re: Construction loan docs to release first lot of funds

Post by Otto Dargan »

Hi iamsam,

The lender will need a copy of the building contract/tender and the plans when you apply for a construction loan. The lender will then ask their valuer to estimate the on-completion value of the property. Your loan will be assessed on the lesser of the land price plus cost of construction or the on-completion value.

Only when your construction loan has been approved will the lender issue a loan offer for you to sign and return. Your builder will need to provide additional documents such as final council approved plans, his insurance and the drawdown schedule once he's ready to receive payments from the bank.

If you want to request that the bank pay your builder directly then you can do that by following these steps:
  • The builder will send you an invoice.
  • You can then complete and sign a drawdown request form. You can get this from your lender.
  • The drawdown request form and the invoice must be sent to the construction department of your lender.
  • To confirm the work that has been completed so far, the lender may require a valuation.
  • The funds will be advanced to your builder generally within five working days.
  • This process can be repeated for each progress payment required by the builder.
You can check out the construction loan tips page for more information or call us to speak with one of our mortgage brokers directly.

Cheers,
Otto
Otto Dargan
Mortgage Broker
P | 1300 889 743
Home Loan Experts

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