Land and Construction
If you're purchasing land and building, the land and construction components may settle or be funded at different times.
The lending structure will depend on the transaction, lender and timing of the build.
Building the property is one project. Financing it is another.
Construction finance works differently from a standard home or investment loan.
The land. The building contract. The valuation. Your cash contribution. Progress payments. Variations. Interest during construction. And the funds available if the build doesn't go exactly to plan.
They all form part of the finance conversation.
At Evermore, we'll help you understand how the construction lending is expected to work before the first progress payment is due.
Because the time to understand your construction finance is before the build begins.
Before we assess a construction finance strategy, we want to understand the complete project.
If you're purchasing land and building, the land and construction components may settle or be funded at different times.
The lending structure will depend on the transaction, lender and timing of the build.
A lender will generally require a valuation of the proposed completed property.
The valuer may review the land, building contract, plans and specifications when assessing the expected value on completion.
Construction funds are generally released progressively as the build reaches agreed stages.
The builder issues a progress payment request and the lender may require supporting documents or an inspection before releasing funds.
During construction, interest is generally charged on the loan funds that have been drawn.
As more progress payments are released, the amount drawn increases and the interest cost may also increase.
A variation changes the agreed building scope or price.
Depending on the lender and circumstances, additional costs may need to be funded by you.
This is why we ask about contingency.
A beautiful spreadsheet with no allowance for the unexpected is not a contingency strategy.
Construction can involve more than loan interest.
Rent or existing mortgage repayments, rates, insurance and other project costs may continue while the property is being built.
For investment projects, there may also be a period between completion and the property reaching expected occupancy.
Holding costs should be considered before construction begins, not discovered halfway through it.
The amount you are approved to borrow is one number.
The amount required at each stage of the project is another.
We'll help you understand the proposed loan amount, expected contribution, lender fees and the way progress payments are intended to operate.
Where the project is more complex, we may also discuss the proposed contingency and holding cost position.
Because construction finance is not only about reaching completion.
It is about having a finance strategy capable of getting you there.
Numbers are a starting point. Construction needs a funding plan.