As a Defence Force member, you've likely moved around quite a bit throughout your service. When you finally find that ideal location to settle down, you might discover the perfect property that needs some work – or perhaps you want to buy land and build your dream home from scratch.
That's where construction loans come into play, specifically for purchase plus renovation projects. Let's chat about how these loans work and why they might be the solution you're looking for.
What Are Construction Loans for Purchase Plus Renovation?
A construction loan for a purchase plus renovation project allows you to buy a property and fund major home renovations under one loan facility. Instead of taking out separate loans for the purchase and renovation, you can access construction loan options from banks and lenders across Australia through a single application.
These loans work differently from traditional home loans. Rather than receiving the full loan amount upfront, funds are released through a progressive drawdown system as your renovation reaches various stages of the project.
How Progressive Drawdowns Work
The beauty of construction loans lies in their progressive payment schedule. Here's how it typically works:
• Initial drawdown: Covers the property purchase
• Subsequent payments: Released at construction milestones
• Interest charges: You only charge interest on the amount drawn down
• Progress inspections: Conducted before each payment release
This system means you're not paying interest on funds you haven't used yet, which can result in significant savings throughout your project.
Key Features That Benefit Defence Members
When applying for a loan through Defence Loans, we understand the unique circumstances of Defence Force members. Here are some features that work particularly well for your situation:
Interest-Only Repayment Options
During the construction phase, most lenders offer interest-only repayment options. This keeps your repayments lower while you're potentially paying rent elsewhere or managing temporary accommodation costs.
Flexible Payment Structure
Payments are made directly to your registered builder, plumbers, electricians, and other contractors. This ensures funds go exactly where they're needed and helps you pay sub-contractors according to your agreed schedule.
'As If Complete' Valuation
Lenders assess your loan amount based on the property's projected value after renovation completion, not its current state. This can help you secure funding for more ambitious renovation projects.
Planning Your Purchase Plus Renovation Project
Before jumping into applying for a loan, it's crucial to make a plan. Here's what you'll need to consider:
1. Property Selection
Look for suitable land or existing properties within your price range. Consider factors like:
• Council restrictions and regulations
• Whether you'll demolish existing property for a new build
• Proximity to Defence bases if you're still serving
2. Professional Team Assembly
You'll need:
• A registered builder for major structural work
• Licensed plumbers and electricians
• Architects or designers if required
• Council plans and permits in place
3. Documentation Requirements
• Fixed price contracts with your builder
• Council plans and development application approvals
• Progressive Payment Schedule outlining each milestone
• Permits for all planned work
Understanding the Costs and Timeline
Construction loans come with specific fees and requirements that differ from standard home loans:
Progressive Drawing Fee
Most lenders charge a fee (typically $200-$500) for each progress payment. Factor this into your budget when planning additional payments beyond your main milestones.
Interest Rate Considerations
Construction loan interest rates are often slightly higher than standard home loan rates during the building phase. Once construction is complete, your loan typically converts to a standard home loan with regular repayment terms.
Timeline Requirements
You'll need to commence building within a set period from the Disclosure Date (usually 6-12 months). This protects both you and the lender from extended delays.
What's Typically Not Covered
It's important to understand that Out of Contract Items are not included in your construction loan funding. These might include:
• Landscaping beyond basic requirements
• Premium fixtures not specified in your building contract
• Temporary accommodation costs
• Storage fees for your belongings
House & Land Packages vs Renovation Projects
While buying off the plan or choosing house & land packages can be straightforward, purchase plus renovation projects offer more flexibility. You can:
• Choose your exact location first
• Customise renovations to your specific needs
• Potentially achieve better value by improving an existing property
• Work within established neighbourhoods rather than new developments
Working with a Finance & Mortgage Broker
As Defence Force members, you have access to specialised lending options that civilian brokers might not be aware of. Defence Loans understands your unique employment situation, deployment schedules, and specific lending criteria that work in your favour.
We can help you access a streamlined application process and work with lenders who understand Defence Force employment patterns. This can be particularly valuable when you're managing applications while posted interstate or overseas.
Whether you're looking at a major renovation project, considering a home improvement loan, or exploring construction options, having the right finance partner makes all the difference.
Call one of our team or book an appointment at a time that works for you to discuss your construction loan options and start planning your next property move.
