Development & construction
Subject to each lender's credit policies these loans fund land purchase and settlement costs, pre construction costs, professional fees, construction costs, loan costs, interest, marketing costs etc. Each loan is assessed on its merits and the lender takes into consideration a multitude of factors including time, risks, product being developed, location, competition, supply and demand, developer's experience and track record, market conditions, selling strategy, number of pre-sales, reputation of the builder etc. Interest rate charged by the lender can vary according to the above assessment. These loans are interest only. The loan is usually repaid from sales proceeds. The borrower needs to contribute equity towards the development.
If you’re building a new home or planning major renovations to your existing home, a construction loan is generally the most appropriate funding option. The difference between a construction loan and other types of loans is that a construction loan is drawn down in stages and not paid as a lump sum. The draw downs enable the builder of a home to finance the various stages of the construction process from the acquisition of land to the various stages of building.