Construction loans are designed to meet the needs of a borrower who is building a home or undertaking major renovations to an established property. The loan money is released progressively as the builder completes agreed stages under the building contract. Typically these stages are.
Completion of foundations
Completion of framing and roofing
Lock - up Stage
Completion of external walls, floors, doors & windows
Internal walls, ceiling, cupboards, benches
Appliances, painting, & occupancy permit
The major benefit is that interest is charged only on the amount outstanding not the total loan approved. The disadvantage is that some lenders will charge fees to inspect the property at each payment stage resulting in higher initial costs.
The documentation required for a construction loan is considerably more than an established property - fixed price building contract with a licensed builder, building plans, specifications and permits.
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