It is important to have a clear idea of exactly what you’re going to pay with any loan, and a construction loan is no different. Make sure you understand what you’ll be up for – and when you’ll be asked to pay.
Fees to be aware of You may be asked to pay loan fees each time you draw down part of the loan.
These fees usually comprise:
- Inspection fees: Your lender may want to physically inspect your home each time a progress payment falls due. This lets your lender check that construction is progressing at an acceptable rate and to an acceptable standard of workmanship. A fee may be levied for each inspection, and while the cost is often between $100 and $200, the fee may vary according to the lender and location of your property.
- Draw down fee: Some lenders charge a fee to cover the costs of making the loan funds available. You may be asked to pay a single fee at the start of your loan or a smaller fee each time you request a progress payment.
- Insurance: As a rule, insurance companies will not provide cover for homes that are under construction. In those instances where cover is available the premiums can be costly and the policy may feature a raft of exclusions.
That’s why it is so important to deal with a reputable builder. Licensed/registered builders must have insurance in place that protects you against non completion of the project, structural defects and public liability claims.
Once construction is complete you will need to take out your own building insurance – in fact, this will be a requirement of your loan. Along with building insurance, it also makes good financial sense to take out contents cover. Using the same insurer for both home and contents insurance often means securing a discount on the combined policy. Comparing premiums across a range of insurers will help you get the best deal possible. Your Loanseeker broker can also arrange insurance for you.