Development / Construction Finance

What you should know about Construction Finance

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How does Construction Finance work?

Construction loans operate differently than standard home loans. Typically, they involve paying only the interest during the building phase, helping to keep your repayments minimal until the construction is complete.

During the construction phase, you're only paying the interest, and once the building is done, the loan switches to a standard home loan. At that point, you start making payments that cover both the principal and interest

Pros and Cons of Construction Finance

Pros

Tailored funding: Funds are provided at different stages of the construction project, ensuring that you have the necessary capital when needed.

Flexibility: The loan can be customised to suit the unique needs of your construction project, whether it's residential, commercial, or a mix of both.

Interest-only period: During the construction phase, many construction loans offer interest-only payments, reducing initial financial strain.

Control over funds: The staged release of funds allows for better control and management of finances, ensuring that money is allocated appropriately as the project progresses.

Support for development: Ideal for property developers, construction finance supports the development of new properties or major renovations, enabling you to take on more ambitious projects.

Cons

Complex approval process: Obtaining construction finance may require more paperwork compared to standard home loans, as lenders assess the feasibility and risks associated with the construction project.

Market Conditions Impact: Economic fluctuations or changes in the real estate market can affect the profitability of the project and may impact the terms of the construction finance.

Higher interest rate: Construction loans typically come with higher interest rates compared to standard home loans. This is primarily because assessing the value of a property that is still in the construction phase poses greater challenges for lenders.

Progress Payments for Construction Home Loans

When building a house, the money you get from the loan is given to you at different times as the work progresses. By giving funds in stages, lenders ensure that the money matches the progress of the building work. This approach helps minimise risks and ensures that the funds are used effectively at each step of the construction process.

These steps include

Foundations (Approx. 10% of Total Loan):

This initial stage involves laying the foundations of the house and installing plumbing.
Around 10% of the total loan is typically allocated for this phase.

Frame (Approx. 15-20% of Total Loan):

The frame phase encompasses building the structure of your property, including roofing, windows, walls, and trusses.
Progress payments during this stage generally range from 15% to 20% of the total loan.

Lock-up (Approx. 30-35% of Total Loan):

In this stage, construction focuses on internal walls, doors, and insulation to make the property weather tight.
Approximately 30-35% of the total loan is typically disbursed at this point.

Fit-out (Approx. 20% of Total Loan):

The fit-out phase involves adding finer details to the home, such as shelving, kitchen, and bathroom cabinetry, tiles, and internal cladding.
About 20% of the total loan is allocated for this stage.

Completion (Approx. 15% of Total Loan):

The final stage covers everything needed to complete the home, which may include the installation of retaining walls or fences and site cleaning.
Approximately 15% of the total loan is released during this completion phase.

Understanding these progress payments helps ensure that funds are appropriately allocated at each construction milestone, aligning with the progress of your home building project.

Owner-Builder Construction Loans

Understanding Construction Loans

When venturing into the realm of construction loans, it's essential to grasp the nuances of owner-builder projects. Typically, to secure a construction loan, one would enter into a contract with a qualified builder. However, for those aspiring to take a hands-on approach in building their homes, there exists the option of applying for an owner-builder construction loan, available through a select group of lenders.

Obtaining approval for such loans can pose challenges, as lenders often perceive owner-builder projects as riskier, potentially prone to cost overruns. Licensed builders may secure loans for up to 80% of the construction cost, while non-licensed individuals may find borrowing limited to 50-70%.

Key considerations before applying

20% Deposit: Aim for a deposit of at least 20% to strengthen your loan application.
Solid Credit Score: Maintain a good credit score and keep debts to a minimum for better approval chances.
Detailed Construction Plan: Prepare a comprehensive construction plan, including cost estimates and quotes for tradesmen and materials.

Given the stringent criteria for these loans and the limited availability of lenders, prospective borrowers are advised to consult with a mortgage broker. A broker can assist in navigating the complexities of owner-builder construction loans, helping you find the right fit for your unique project.

Which kind of project is eligible for construction finance?

At Broc Finance, construction finance is suitable for low to medium sized of construction projects, including

Building or renovating a single-family home or multi-dwelling residential units.

Developing or expanding commercial properties such as offices, retail spaces, or industrial buildings.

Comprehensive projects involving the construction of residential or commercial properties from the ground up.

Major renovations or extensions to existing homes.

These categories encompass a wide range of commercial properties, each serving a specific purpose or industry. The distinction between commercial and residential properties is primarily based on the property's use and intended function.

What documents are needed to apply for Construction Finance?

In addition to the usual documents needed for a loan application such as proof of identification proof and credit history records, construction finance may also require

Council plans and permits
Professional building plans
Proof of land purchase
Proof of contract with a licensed builder
Proof of builder's insurance

How do I apply for a commercial property loan?

1. Submit Application

First step is to simply fill out the application form with the required information and loan request.

2. Get Indicative Quote

Once the application is received, our lending specialist would get an indicative quote within 24-48 hours.

3. Letter of Offer (LOO)

Once we receive the mandate to proceed basis indicative quote, we get a formal letter of offer from the lender.

4. Valuation and Legal Docs

On receipt of signed LOO, the lender would initiate valuation and get loan docs prepared.

5. Disbursement

Once we receive the mandate to proceed basis indicative quote, we get a formal letter of offer from the lender.

Construction vs. Standard Home Loan

Start loan application

Construction Loan

Purpose: Finance the construction of a new home or major renovation.

Deposit Required: At least 5%, but ideally 20%.

Finance Provided: Gradually as payments are required at various stages by the builder.

Interest: Charged on amounts drawn down only.

Repayments: Usually interest-only during construction.

Standard Home Loan

Purpose: Finance the purchase of an existing home, including new builds.

Deposit Required: At least 5%, but ideally 20%.

Finance Provided: All loan funds are released at once.

Interest: Charged on the full loan amount from the start.

Repayments: Usually principal and interest, but some loans offer an interest-only option for a set period.

Why should you choose Broc Finance?

In a short tenure, Broc Finance has helped Australian businesses, especially the SMEs to secure diverse financing options and facilitate the same via credible lenders. We have a robust network that comprises the top lenders in the country. Our accessibility to varied business loans makes it easy for businesses to get the kind of financing that’s best suited for them.

Tailor made options

Being a small business owner, many of our clients are not sure of right loan product for their businesses. Our lending specialists understand their needs and recommend tailor made options.

Personal Consultation

Unlike business loan marketplace websites which use AI based algorithms to match your requirements, we provide obligation free personal consultation as every business is different and an AI based algorithm may not provide them the optimum solution.

Competitive Pricing

We endeavour to achieve the optimum business loan solution for our clients at the most competitive pricing possible.

Clear communication

We understand the essence of time so don’t believe in wasting our customers time by giving false hopes. Transparent and clear communication is in our DNA.

Real results with real people.

65+ customer reviews

5.0

John Christian

Broc Finance were a pleasure to work with. Saroj took the time to understand the purpose for the facility and my business. In doing so, he secured exactly what I wanted, quickly and at a very competitive rate. I’d recommend Broc Finance to anyone looking for a finance facility who wants to work with a broker who can provide that personal experience that the Big-4’s just don’t offer. Great experience!! I look forward to working with Broc Finance in the future.

Manpreet Kaur

Our sincere thanks to Saroj ji & his team for their invaluable assistance in securing the loan. We are extremely greatful for his exceptional service & support throughout the process. Highly recommend!

Amish Desai

A true professional with in depth knowledge of products and processes; Real time delivery of service, with a customer centric view, simply superb Saroj!

Harry Gill

It was Great to work with Saroj. He was very accomodating and helpful . The process of the loan was very simple and easy. Saroj kept me updated at every step. Highly Recommend Saroj . Harry

Matthew

Broc Finance were awesome…really responsive and solutions focussed. We especially appreciated having a broker who was an advocate for our interests when engaging with lenders.

Niteesha Nagowah

We had an incredible experience working with Saroj from Broc Finance. He is incredibly knowledgeable, responsive, and guided us through the purchase of our company vehicle with expertise. The attention to detail and commitment to finding the best possible options truly set him apart. Highly recommend his services for anyone navigating the complexities of obtaining a finance. Thank you again for outstanding assistance.

Ibrahim Alpay

Saroj and his team is amazing have been using him for business funding for over a year he has found surprising solutions when others couldn’t make it happen very skill full with negotiating high loan amounts that I would never expect at wonderful terms and rates look no further I recommend broc finance for your business lending purposes look no further and don’t think twice much appreciated won’t go to any other broker at all many thanks to his team !!!!!!

Greg Canal

Saroj Shah (Sas) was very easy to deal with and the outcome was just what we wanted and super fast. Thank you

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Frequently asked questions

Construction finance is designed for individuals or businesses involved in building projects. This includes property developers, homeowners undertaking significant renovations or new constructions, and commercial builders. Essentially, it caters to anyone requiring financial support to fund the various stages of a construction project, ensuring a steady flow of funds aligned with the progress of the building work.

Terms can range from 6 months to 3 years. Interest rates are generally variable and tied to the prime rate or another benchmark. The loan amount is based on the projected value of the property once completed.

Funds are disbursed in stages, known as "draws," based on the progress of the construction. Each draw requires an inspection to ensure that specific milestones have been met.

For construction-to-permanent loans, the loan converts to a permanent mortgage with a set term and interest rate. For stand-alone construction loans, the borrower must obtain a separate mortgage to pay off the construction loan.

Yes, once construction is complete, the loan can be refinanced into a traditional mortgage with more favourable terms or to access equity in the property.

Meeting stringent qualification requirements
Providing detailed and accurate project documentation
Managing construction delays and cost overruns
Navigating zoning and permitting issues

Development / Construction Finance

Up to 70% of Gross Realisation Value (GRV)

Residential and commercial constructions are eligible

The loan term is tailored to the project

Zero presales option available

What is Construction Finance?

Critical information sheet

Our loan guide

Loan amount

Interest rates from

Loan term

Pre-approval time

Unconditional approval & settlement time

Repayments

Security

What you need to know

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