Assessing a Construction Loan Application
Construction loans have progress based drawdowns, specific documentation requirements, and unique valuation considerations. Assessing them well protects the client through the build.
Collecting the fixed price building contract
A registered builder fixed price contract is the starting point. The contract price, inclusions, exclusions, and variations all shape the loan amount. Contracts that include provisional cost items or exclude essential works need close review because the final build cost may exceed the contract value.
Understanding progress payments
Construction loans draw down in stages as the build progresses. Typical stages are slab, frame, lock up, fix out, and completion. Each stage requires a valuation inspection confirming the work is complete before the next drawdown. Brokers need to manage client expectations about the timing of each drawdown.
Assessing the valuation
Construction lenders value the property on an as if complete basis using the contract value plus the land value. Any variation between the valuation and the contract can affect the final loan amount. Valuers consider the quality of the build, the location, and the market for comparable properties.
Key takeaways
- ✓Collect the fixed price building contract with all variations
- ✓Walk the client through how progress payments work
- ✓Understand how as if complete valuations are assessed
- ✓Plan for the timing of each drawdown through the build
How QualifyMate helps
QualifyMate handles the income, liability, and bank statement side of a construction loan file, so brokers can focus their time on the building contract review and the funding position rather than chasing document data.
Key terms
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