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4 Essential Steps to Getting a New Home Construction Loan

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Disclaimer: the information on this page is for general information only. It should not be taken as constituting professional advice. Montgomery Homes is not a financial adviser and you should consider seeking independent legal, financial or other advice to check how the website information relates to your unique circumstances.

Looking to build a brand new home, but not sure how a construction loan works?

If you’re needing to loan funds, a construction loan is required for homeowners looking to build, knock down and rebuild, or complete major renovations.

Unlike other home loans, construction loans are flexible and have a “progressive drawdown”, meaning you won’t get the loan amount in a lump sum. Instead, you will receive instalments from the bank throughout construction to meet the needs of the building project. It also means you won’t have a large amount of money sitting in your bank account, just waiting to be spent!

Another major benefit of a construction loan is that you will only pay interest on the money you use, or each instalment. Some banks like NAB also offer interest-only repayment options during the building process, lightening the load and reducing the amount you have to pay upfront.

To make the process easy, in this blog, we share four simple steps to getting a construction loan and financing a new home build.

#1. Decide whether you're going to build your own home or enlist the help of a professional home builder

New home construction loans differ based on who will complete the building project - an owner builder or a registered home builder. Different paperwork is required for each option.

There are a wide range of benefits to choosing a registered builder like Montgomery Homes. For example, we will take care of construction paperwork and building approvals for you; we will communicate with your allocated banker or broker and provide the necessary documents; and we have more than thirty years of experience in the industry.

We can make the home building and construction loan approval process much quicker and simpler for you, so you can focus on fun things like choosing a home design, picking colours and finishes, and much more.

We’ll take care of the heavy lifting - talk to us about building a brand new home today.

#2. Provide the bank (or a new build loan provider) with a range of documents

As we mentioned above, a new home construction loan requires a bit of paperwork and proof of finances.

Owner builders (i.e. the DIY builders) will need to provide the bank with council plans and permits, insurance documents, and a progressive payment schedule.

With Montgomery Homes, we can provide all of this information for you, along with a copy of your fixed price contract. After you’ve chosen a home design, made adjustments to the floor plan, chosen colours and finishes, and selected any upgrades you might like for your new home, we will get you to sign off on the final plans.

This is what we will need to give to the new build loan provider, be it a bank or a broker.

Once all of this documentation is provided to the loan provider, they can process the loan (and hopefully approve it) and then your new home will be sent to construction!

#3. Your bank or provider will need an “as if complete” valuation

Before we start your new home build, the loan provider will need to do an “as if complete” valuation. This is where they estimate the value of the land, the home design, or the renovation and determine whether the loan amount is realistic.

The loan provider will also review the contracted cost of construction, the DA/CDC stamped plans, inclusions, insurances, and the contract you’ve signed. This will ensure you have enough money to complete the building project, so you don’t end up running out of money half way through.

The bank or loan provider might also complete inspections during construction to ensure all is going to plan.

#4. We'll arrange insurance for your site and construction team

Home and building insurance will give you and your loan provider some peace of mind during construction. Both the building work and the builders need to be safeguarded - NAB recommends the following insurance types:

  • Builders All Risk Insurance: this covers the risk to the building or structure during construction.
  • Home Warranty Insurance: this covers risks like non-completion due to death, disappearance, or insolvency (specifically for registered home builders). It also covers structural defects.
  • Public Liability Insurance: this covers the risk of damage to the property or anyone on the property.

Insurance will make the construction process simple and stress-free. You’ll be covered from start to finish, along with your home build, your property, and our builders.

Make the building process simpler with a new construction loan

If building a home is just out of reach financially, a construction loan can kick-start the construction process. Talk to your bank or chosen loan provider for more information about construction loans and their unique requirements.

Plus, talk to us about how we can make applying for a loan simpler. We’ll provide all the documents you need to streamline your loan application and make your building experience more care-free and enjoyable.

Reach out to us today.

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