Financing Your New Home build - How It Works

Bella's Process of Home Finance

Building a home is an exciting journey, and Bella Homes is here to guide you through the financing process seamlessly. Here’s How it works:

Introduction

Overview of Construction Financing

Construction financing is essential for turning your dream home into reality. At Bella Homes, we ensure a smooth process, making it easier for you to manage your budget and build your home with confidence.

Understanding Construction loans

What is a Construction Loan?

A construction loan i s a short-term loan used to cover the costs of building a home. These loan typically transition to a mortgage once the construction is complete.

Types of Construction Loans
  • Construction-to-Permanant Loan: Converts to a mortage after the home is built.
  • Stand-Alone Construction Loan: Seperate lans for construction and the mortage.
  • Renovation Construction loans: For major renovations of an existing property.

Bella's Financing Process

Pre-Approval

Before starting, it’s crucial to get pre-approved for a construction loan. This helps set a clear budget and streamline the process.

Deposit Requirements

  1. Initial Deposit of $2,000: Paid once preliminary design drawings and a fixed price estimate are provided. This fee covers the HIA Build Contract Preparation and site testing (soil test & contour survey). Pre-approval for finance is expected by this stage unless paying in cash.
  2. Balance of Deposit: The remainder of the 5% deposit, minus the initial $2,000, is paid upon finance approval. This fee covers building approval preparation, full working drawings, and council lodgement fees. Proof of finance approval is required.

Loan Application

To apply for a construction loan, you’ll need detailed plans, cost estimates, and contractor information. Bella Homes assists you throughout this process to ensure a smooth application.

Approval and Terms

After reviewing your application, the lender will approve the loan and outline terms, including interest rate and repayment schedule.

During Construction

Drawdown Schedule

Funds from the construction loan are disbursed in stages, known as drawdowns, corresponding to specific milestones in the construction process. For example, payments might be made at the completion of the base stage, frame stage, enclosed stage, fixing stage, and practical completion. This staged approach ensures that funds are available when needed and helps manage the project’s cash flow.

Inspections and Progress Reports

Regular inspections by Bella Homes and the lender ensure that the construction progresses as planned and meets all necessary standards. Each stage of the drawdown schedule requires an inspection and progress report before funds are released. This process helps maintain quality control and keeps the project on schedule. Progress reports provide detailed updates on the construction status, highlighting completed tasks and any potential issues.

Interest Payments

During the construction phase, you typically only pay interest on the amount that has been drawn down, rather than the entire loan amount. This can help manage your cash flow and reduce financial strain during the building process. Interest payments are usually made monthly and are based on the outstanding loan balance. Once the construction is complete, the loan transitions to a permanent mortgage, and you begin making regular mortgage payments, including both principal and interest.

Transitioning to Permanent Mortgage

Completion of Construction

Upon completing the construction, final touches such as landscaping, interior finishes, and any pending inspections are addressed. This stage ensures that the home is fully ready for occupancy and meets all building codes and quality standards. Bella Homes will conduct a thorough walkthrough with you to confirm that all aspects of the build meet your expectations.

Final Inspection and Valuation

A final inspection by an independent appraiser assesses the home’s condition and ensures that it complies with all agreed-upon specifications. This appraisal determines the current market value of the home, which is essential for the next steps. The lender uses this valuation to finalize the terms of the permanent mortgage, ensuring that the loan amount aligns with the home’s value.

Converting to a Permanent Loan

Once the final inspection and appraisal are complete, the construction loan transitions to a permanent mortgage. This involves finalizing the interest rate, repayment schedule, and loan terms. The permanent mortgage typically features a lower interest rate and includes both principal and interest payments. Bella Homes will assist you in coordinating with the lender to ensure a smooth transition, providing all necessary documentation and support throughout the process.

Bella's Stage Payment

The remaining payments are made in instalments at the end of each construction stage:

  • Base Stage: 15%
  • Frame Stage: 20%
  • Enclosed Stage: 25%
  • Fixing Stage: 20%
  • Practical Completion: 15% This totals 100% of the contract amount.

Tips for a smooth financing experience

Working with Professionals Engage experienced builders, architects, and financial advisors. They ensure quality construction, guide you through loan options, and help design within your budget. Bella Homes collaborates with trusted professionals to support your project from start to finish.

Staying Organized Maintain a dedicated folder for all documents and use digital tools to track expenses and deadlines. Regularly update these records to stay on top of progress and quickly provide necessary documentation to lenders or contractors.

 

Recommended Digital Tools for Staying Organized
  1. Trello: Project management tool to track tasks and deadlines.
  2. Google Drive: Cloud storage for organizing and sharing documents.
  3. Excel/Google Sheets: For budgeting and expense tracking.
  4. Evernote: Note-taking app for storing important information and reminders.
  5. Slack: Communication tool for staying in touch with your team and contractors.

These tools help streamline your project management, keeping everything organized and accessible.

regular updates

Keep open communication with your builder and lender. Schedule regular meetings to discuss progress, address concerns, and make adjustments. Bella Homes provides frequent updates to keep you informed and ensure timely decision-making.

Conclusion

Final thoughts

Understanding the construction financing process with Bella Homes ensures a successful home-building experience. With careful planning and the right support, your dream home is within reach.

Additional Resources

Helpful links
  • Loan Calculators: Use this tool from MoneySmart to estimate your loan payments during and after construction.
  • Financial Advice: Government resources for managing your finances during the construction process from MoneySmart.
  • HIA Build Contracts: Information about industry-standard contracts used by Bella Homes from the Housing Industry Association.
  • Project Management Tools: Learn more about Trello, a project management tool to help you stay organized.
  • Further Reading: Articles and insights on construction loans from Elephant Advisory.


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