The Ins and Outs of Construction Loans for Extensions

Planning a home extension in Queensland? You're not alone. Many homeowners are choosing to expand their current property rather than move to a new one. Whether you're adding a second storey, extending the kitchen, or creating that dream outdoor entertaining area, a construction loan could be the financial solution you need.

Understanding Construction Loans for Extensions

A construction loan is quite different from your standard home loan. While a traditional mortgage gives you the full loan amount upfront, construction loans work on a progressive drawdown system. This means you'll only charge interest on the amount drawn down as your extension project progresses.

For extension projects specifically, you'll typically need to provide council plans and permits before applying for a loan. The lender will also require a Progressive Payment Schedule that outlines when funds will be needed at various stages of the project.

How Progressive Payments Work

Construction loans operate through instalments tied to construction milestones. Your registered builder will submit progress claims as work is completed, and the lender releases funds accordingly. Common drawdown stages for extensions include:

• Foundation and slab completion
• Frame and roof installation
• Lock-up stage (walls, windows, doors)
• Fixing stage (plumbing, electrical rough-in)
• Practical completion

Each drawdown requires an inspection to verify the work has been completed to standard. This protects both you and the lender throughout the building process.

Interest Rates and Repayment Options

Construction loan interest rates can vary depending on the lender and your circumstances. During the construction phase, you'll typically have interest-only repayment options, which helps manage cash flow while you're potentially still living in the existing part of your home.

Once construction is complete, the loan usually converts to a standard principal and interest home loan. Some lenders offer the flexibility to lock in a portion of your interest rate during construction to protect against rate rises.

What You'll Need to Get Started

Before applying for a loan, you'll need several documents prepared:

• Detailed building plans and specifications
• Council approvals and permits
• Fixed price contracts with your registered builder
• Progressive Payment Schedule
• An 'as if complete' valuation of your property

Your builder will need to be registered and appropriately licensed. They'll also need to provide their own insurance and warranty documentation.

Managing Additional Costs

Extension projects can involve various additional payments beyond the main building contract. Consider costs for:

• Progressive Drawing Fees charged by the lender
• Council fees for development applications
• Professional fees for architects and engineers
• Out of Contract Items not included in the main build price
• Costs to pay sub-contractors like plumbers and electricians

A renovation Mortgage Broker can help you understand the total loan amount needed and factor these costs into your application.

Timeline Considerations

Most construction loans require you to commence building within a set period from the Disclosure Date - typically between 6 to 12 months. This ensures the project moves forward and the funds are used as intended.

Make sure your registered builder can meet these timeframes before finalising your loan application. Delays can sometimes result in additional fees or the need to reapply.

Working with the Right Professionals

Construction loans involve coordination between multiple parties - your builder, architect, council, and lender. Having experienced professionals who understand the process can make a significant difference.

At Premium Finance Group Australia, we access Construction Loan options from banks and lenders across Australia. Our streamlined application process helps Queensland homeowners secure appropriate financing for their extension projects. We understand local council requirements and can guide you through the entire process.

Construction loans for extensions offer a practical way to fund major home renovations without having to find the full amount upfront. The progressive nature of the loan aligns with how construction work is completed and paid for, making it an ideal financing solution for your extension project.

Call one of our team or book an appointment at a time that works for you to discuss your extension financing options.