construction loan

Construction loans are different to residential lending mainly due to ongoing payments for building work as construction progress in each different stages. 

Unlike a regular home loan where payments are made over a lump sum transfer, a construction loan allows borrower to draw down the loan balance when payments are required to be made to the builder at each key stages during the building process.

While building work is still under progress, borrower will only need to be asked for interest payments for the amount of money that has been draw down. 

This means payments will be smaller from the start as only interest payments are required, and increase gradually over time with construction process approaches towards completion.

A construction loan has a maximum LVR of 95%, which means you are allowed to borrow up to 95%. However this may differ across different lenders and some lenders often set a maximum time frame for the complete draw down of the loan you borrowed, usually around 6 months. 

This means if you are not planning to commence construction right away after you have bought your land, you may need to purchase the land separately by taking out a land loan.