Construction Home Loan
Purchasing vacant land and building a new house from scratch can be a great way to own your own home sooner. If this is your strategy, then you’ll need a Construction Home Loan.
If however you are a property investor or a DIY renovator, you’re more likely to be interested in buying rundown properties for renovation and later sale for profit. You’ll need a Construction Home Loan too, and indeed many Australians are now embracing this practice as it’s often a better way to find value in expensive property markets such as Sydney and Melbourne.
How Do You Qualify for a Construction Home Loan?
Generally you will need the following to qualify for a Construction Home Loan:
- Architect-designed plans
- Development application (DA) approval
- Fixed price contract with a licensed builder
Some lenders may consider funding the construction as an ‘owner builder’ project, but this may require a lower loan to value (LVR) ratio, more documentation and higher fees.
Funding run down properties for renovation can also more difficult because banks need to be confident you will complete the renovation project. Lenders must be able to sell the property if you default on the loan, and unfinished renovations are very difficult to sell for a good price. In order to determine your eligibility for a construction home loan, you can consult a personal mortgage broker from Express Mortgage Market.
“How Much Can I Borrow?”
The amount of construction or home renovation loan depends on your circumstances. If the property requires only minor renovations, you can usually borrow up to 90% of the value of the property depending on the nature of the required work. Aesthetic improvements such as garden landscaping are also accepted and if you are getting the services of a licensed builder, you can often borrow 95% of the purchase price on top of the renovation costs.
Meanwhile, if you need to knock down the property and rebuild the house, you may borrow up to 90% of the land value or 95% of the total cost of the land on top of the construction costs. Take note that you need a licensed builder if you are rebuilding the property.