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Building Your Dream Home? Here is What You Need to Know About Construction Loans in Perth

If you are planning to build a home in Perth, you have probably already discovered that the process is quite different from buying an established property. One of the key differences is the type of finance you will need: instead of a standard home loan, many people opt for a construction loan.

What is a Construction Loan?

A construction loan is specifically designed to fund the building of a new home or major renovations. Unlike a standard home loan where you receive the full amount upfront, a construction loan is paid out in stages – known as progress payments – as the building work is completed.

This staged approach means you only pay interest on the funds that have been drawn down, which can help reduce your repayments while construction is underway.

How Do Construction Loans Work?

Construction loans are typically structured to align with your builder’s payment schedule. The loan is paid out across key stages of the build, which often include:

  1. Slab/Foundation Stage – When the foundation is laid.
  2. Frame Stage – Once the structural frame is up.
  3. Lock-Up Stage – When walls, doors, and windows are installed.
  4. Fit-Out Stage – Interior finishes like cabinetry, plumbing, and electrical are completed.
  5. Completion Stage – Final touches, inspections, and handover.

 

Each time a stage is complete, the builder requests payment, and your lender releases the funds after an inspection.

Benefits of a Construction Loan

  • Pay As You Build: Interest is charged only on the amount used, rather than the full loan upfront.
  • Tailored for Building: The structure matches the building process, helping keep finances manageable.
  • Flexibility: Once construction is complete, many loans can be converted to a standard home loan.

Key Things to Consider

  • Builder Approval: Lenders generally require that your builder be licensed and approved.
  • Fixed-Price Contracts: Most lenders prefer fixed-price building contracts to avoid unexpected cost blowouts.
  • Progress Inspections: Be prepared for inspections at each stage before funds are released.
  • Timing: The construction process can take several months, so understanding the timeframe is important.

Why Work With a Mortgage Broker in Perth?

The construction loan process can be more complex than a standard home loan, with different lenders offering varying policies, rates, and progress payment requirements. Working with a local mortgage broker can help you:

  • Compare construction loan options across multiple lenders.
  • Understand lender requirements and documentation.
  • Navigate the approval process smoothly while coordinating with your builder.

Final Thoughts

Building your dream home is an exciting journey, and having the right finance in place can make all the difference. Whether you are starting from scratch or undertaking a major renovation in Perth, a construction loan could be the right solution to bring your vision to life.

If you are considering a construction loan, we can help guide you through the process and explore suitable options to match your building plans.

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Luminar Finance Pty Ltd Representative 562294 is authorised under Australian Credit License Number: 389328 I ABN 42 678 126 317.
This page provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances.

 

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