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Frequently Asked Questions – Construction Loan

Can I Fix A Construction Loan?

The good news is yes! Contrary to popular belief, there are a few lenders that will allow you to fix your home loan before construction commences. It is particularly handy when fixed rates are increasing or the Reserve Bank is likely to increase rates.

What Do I Do If The Builder Does Not Finish On Time?

It will depend on the terms of your contract. Remember there are factors that influence the completion of your home that is outside of the builder’s control. These include wet weather delays, supply of materials, variations to the contract for additional/subtraction of works, and/or disputes. The agreed completion date can extend if the builder claims the delay has been a result of the allowable extensions as stated and allowable in the building contract. If there is an agreeable date in the contract and this has not been met, then you may be entitled to damages resulting from the delay. In all cases communicate your concerns with the builder and always in writing. If you are not satisfied with the response it’s best to obtain legal advice.

How Long Does It Take To Build A Home?

This is a difficult question to answer as there are multiple factors that can impact construction progress. Builders are unable to predict weather delays, council lodgement of approval delays, and supply delays with materials. Under the HIA building contract your builder will nominate the time frame and the amount of additional days to allow for wet weather. Typically, though a standard 4 bedroom, 2 bathroom, double garage home will generally take 4 – 6 months depending on how long the local council is taking to approve plans. A double-storey home will take longer so allow an additional 2 months for this type of home. If the home you’re building is a custom or luxury dwelling then, unfortunately, these types of homes can take significantly longer to build. It’s not uncommon for these homes to take nearly a year. Remember to always allow a time buffer when building as it’s rare a home will be built within an expected time frame. If it does, then count your lucky stars but if not at least you are well prepared.

How Do I Know How What Is Happening Throughout Construction?

A good builder will have clear communication channels set up to provide continual feedback to their clients on a regular basis. These can be either by email, phone calls or in some instances you can log on to their website and track the progress. In any regard, you should be kept up to date and not feel as though you can’t contact your builder or site supervisor if you want to know how the build is progressing.

 

Can I Make Changes To The Home During Construction?

For fixed-price building contracts or house and land contracts, the builders will generally allow small alterations to finishes, but will generally not allow major or structural changes. This shouldn’t stop you from asking the builder if you are desperate for the alteration, but bear in mind it could come at a considerable cost. Costs such as variances fees, additional labour costs, and possible re-approvals from the council – these will all add up in the end. This is why it’s imperative that you take the time at the design stage and don’t rush this very important process.

 

Do Construction Prices As Advertised By Builders Include Everything?

Unless the advertisement mentions terms such as “turnkey”, “no more to pay” or “move-in pack”, then unfortunately not. The base price usually does not include items such as floor coverings, window coverings, light fittings, landscaping, driveway, turf, patio/deck, and other smaller items (TV antenna, phone connection). As a general rule add an additional 20% onto the base price to include all of these items. The reason why these items are usually not included is that we all have our own unique ideas and tastes when it comes to our homes.

Can I Withhold A Progress Payment From The Builder?

This will depend on the building contract and if it permits you to withhold a progress payment. Most contracts only allow this type of action at practical completion (the last stage of construction). You should obtain legal advice though if you plan to withhold a progress payment because unlawfully withholding payment could make you in default of your contract to which additional penalties and interest could apply. The best course of action is to communicate your concerns with the builder (always in writing) and ask for a written reply. In most cases, a solution can be worked through which may mean the work could be rectified or completed by the next stage. This way you are not disadvantaged by a stalled build and you keep the builder onside. If at any time you don’t understand the building contract or the action taken by the builder it’s time to have your solicitor involved.

Can The Builder Charge Interest On Late Progress Payments?

In short, the builder is entitled to charge interest on overdue progress payments. Your building contract will confirm the terms of progress payments, the length of time for payment, and the penalties if not met. Builders will work with you so if you are in doubt that a progress payment will not be paid in time or we advise that the bank will not be able to release the funds within the time allowed, communicate this with your builder. In most instances, if the payment is only a few days late they are happy to overlook the delay.

Does Signing A Preliminary Agreement Commit Me To Signing A Contract With The Builder?

No, this does not commit you to signing a contract with the builder. A preliminary agreement is a contract that means you are happy to engage the builder to carry out preliminary work, such as soil tests on your land, drafting plans, site surveys, and other works for setting the house on your block. However, a non-refundable deposit is usually required to cover the builders’ expenses.

What Are Provisional Sum Items?

These are reasonable estimations for labour and materials that the builder has provided for items that the owner has not yet decided on at the time of the contract. This is common for items such as landscaping.

What Are Prime Cost Items?

A prime cost item is a fitting or fixture that has not been chosen by the owner or has an unknown price at the time the contract has been entered into and includes an estimate for supply and delivery.

 

Does The Builder Have To Have Insurance Throughout Construction?

Builders are required to have warranty insurance which can be also known as Statutory Insurance or Home Indemnity Insurance. Each state of Australia has different provisions and in most states, except Queensland, it covers situations where the builder abandons construction for reasons such as death, bankruptcy, or injury. Queensland Insurance provides additional cover against major defects to the work for a period of six years and six months. It’s important to not confuse this cover with Contract Works and Public Liability Insurance (Builders All Risk insurance). This insurance covers fire, damage, theft, and injury during the construction process while the builder is in possession of the building site.

 

What Do I Do If The Builder Does Not Start On Time?

The start date is dependent on many factors such as council approvals and weather but once these have been met then the build should start as per the contract or an agreed time between the owner and the builder. If the builder doesn’t start, then it can be considered a breach of contract. Again, always request responses in writing from the builder and if there is no satisfaction then you should pursue the options available to you as the result of breach of contract. If unsure, seek legal advice.

Contact us online or call 1300 55 44 97 today to learn how we can answer all your questions about getting a home loan on a Temporary Visa!

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