Construction Loan Preparation Guide for Defence Members

Building your dream home or undertaking major home renovations is an exciting journey, especially for current and former Australian Defence Force members who have access to specialised construction loan options from banks and lenders across Australia. However, proper preparation is crucial to ensure your application runs smoothly and you secure the right loan amount at a favourable interest rate.

Understanding Construction Loans

Construction loans work differently from standard home loans. Instead of receiving the full loan amount upfront, you'll receive funds through progressive drawdown as your build reaches various stages of the project. This means you'll only charge interest on the amount drawn down, which can result in significant savings during the construction period.

These loans typically offer interest-only repayment options during the building phase, allowing you to manage cash flow more effectively. Whether you're considering a new build, house & land packages, or buying off the plan, understanding how progressive payments work is essential.

Making Your Initial Plan

Before applying for a loan, you need to make a plan that covers several key areas:

1. Location and Budget: Identify your ideal location and establish a realistic price range
2. Build Type: Decide whether you'll purchase suitable land for a new build or demolish existing property
3. Timeline: Factor in when you need to commence building within a set period from the Disclosure Date

Essential Documentation and Approvals

Your preparation should include gathering all necessary documentation well before applying for a loan. This includes:

• Council plans and permits: Ensure all council regulations are met and obtain necessary approvals
• Development application: Required for most new construction projects
• Fixed price contracts: Lenders prefer detailed contracts with clear construction milestones
• Progressive Payment Schedule: This outlines when payments will be made to your registered builder

Working with Contractors and Professionals

Your construction team will typically include a registered builder, plumbers, electricians, and other specialists. Ensure all contractors are properly licensed and insured. Your builder should provide a detailed schedule showing how they'll pay sub-contractors and when various stages of the project will be completed.

Be aware of Out of Contract Items not included in your fixed price contract, as these may require additional payments and could affect your loan amount.

Understanding the Valuation Process

Lenders typically conduct an 'as if complete' valuation, which estimates your property's value once construction is finished. This valuation, combined with your deposit and loan amount, determines how much you can borrow.

Some lenders may also charge a Progressive Drawing Fee each time funds are released, so factor this into your budget planning.

Managing Council Restrictions and Regulations

Each council has specific restrictions and regulations that can impact your build. Research these thoroughly during your preparation phase, as they can affect:

• Building design and materials
• Construction timelines
• Additional approval requirements
• Setback requirements and height restrictions

Streamlined Application Process for Defence Members

As a current or former ADF member, you may have access to a more streamlined application process through specialised lenders. This can include:

• Faster approval times
• Reduced documentation requirements
• Tailored loan products
• Dedicated support throughout the construction process

Alternative Options

If a full construction loan isn't suitable for your needs, consider whether a home improvement loan might work for smaller projects or renovations. These loans often have different requirements and may be processed more quickly.

Final Preparation Steps

Before submitting your application:

1. Review all contracts and documentation with your solicitor
2. Confirm your builder's availability and start dates
3. Ensure you have adequate funds for any deposits or upfront costs
4. Understand the instalments schedule and payment timing

Proper preparation is the foundation of a successful construction loan application. By taking time to organise your documentation, understand the process, and work with experienced professionals, you'll be well-positioned to secure the funding you need for your building project.

Call one of our team or book an appointment at a time that works for you to discuss your construction loan options and how we can support your building journey as a Defence Force member.