Building your dream home as a current or former Australian Defence Force member comes with unique opportunities and challenges. Understanding construction loan settlement is crucial for a smooth building experience.
What Makes Construction Loans Different
Unlike traditional home loans where you receive the full loan amount upfront, construction loans work through progressive drawdowns. This means you'll only charge interest on the amount drawn down, making them more cost-effective during the building phase.
The loan amount is released in instalments as your registered builder reaches specific construction milestones. This progressive payment schedule protects both you and the lender, ensuring funds are only released when work is actually completed.
Understanding the Progressive Drawing Process
When applying for a loan through Defence Loans, we'll help you access construction loan options from banks and lenders across Australia. Each lender has their own process, but most follow these standard stages:
- Land purchase and council plans approval
- Foundation and slab completion
- Frame and roof completion
- Lock-up stage (walls, windows, doors)
- Fixing stage (plumbing, electrical, plastering)
- Final completion and handover
Each drawdown requires an 'as if complete' valuation to ensure the work matches the amount being claimed. Your builder will submit progress claims to pay sub-contractors, and the lender releases funds based on these various stages of the project.
Ready to get started?
Book a chat with a Finance & Mortgage Brokers at Defence Loans today.
Interest-Only Repayment Options
During construction, most lenders offer interest-only repayment options. This means you'll only pay interest on the funds drawn down so far, rather than the full loan amount. Once construction is complete, the loan typically converts to principal and interest repayments.
The interest rate during construction may differ from the final rate, so discuss this with your renovation mortgage broker early in the process.
Planning Your Construction Timeline
Most lenders require you to commence building within a set period from the Disclosure Date - usually six to twelve months. It's essential to make a plan that includes:
- Securing your ideal location and checking council restrictions
- Confirming your price range and loan amount
- Deciding whether to demolish existing property or purchase suitable land
- Obtaining council regulations approval and development application if required
- Finalising fixed price contracts with your builder
For ADF members considering house & land package loans, the process may be more streamlined as many approvals are already in place.
Common Settlement Pitfalls to Avoid
Many Defence Force members encounter issues during construction loan settlement. Here are key areas to watch:
Progressive Drawing Fees: Each drawdown incurs a Progressive Drawing Fee, typically $200-$500 per claim. Budget for these additional payments in your overall costs.
Out of Contract Items: Variations and extras not included in your original contract can blow out your budget. Ensure your loan covers potential additional costs.
Permit Delays: Council permits and approvals can take longer than expected. Factor in buffer time to avoid rushing decisions.
Trades Coordination: Delays with plumbers, electricians, or other specialists can impact your payment schedule and overall timeline.
Construction Loans vs Other Options
Construction loans work well for new builds, but they're not your only option. Consider:
- Major home renovations: May qualify for a home improvement loan instead
- Buying off the plan: Often uses standard home loan products
- Investment properties: Check our investment loan options for building rental properties
For those looking to build an investment property, expanding your property portfolio through construction can be highly rewarding with proper planning.
Making the Most of Your Streamlined Application Process
As specialists in Defence Force lending, we understand military life's unique circumstances. Our streamlined application process considers:
- Deployment schedules that might affect settlement timing
- Military housing allowances and their impact on borrowing capacity
- Potential postings that could affect your building location
- ADF-specific benefits like LMI waivers
If you're still deciding between building and buying established, our loan health check service can help you understand all your options.
Construction loan settlement doesn't have to be overwhelming. With proper planning, understanding of the progressive payment system, and expert guidance, you can successfully build your dream home while serving or after completing your service with the Australian Defence Force.
Call one of our team or book an appointment at a time that works for you to discuss your construction loan options and ensure your settlement process runs smoothly.
