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Construction loans -Max and min Progress payment stages

Posted Sunday, 15 June 2014 at 13:56 by Shape Home Loans
Tagged: Investors | Home Buyer | First home buyer | Hint/Tip | Wealth Creation
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Construction loans- Progress payment stages


A construction loan applies if your either;


1. Buying a house and land package ( 5 stages min)

2. Building a new home ( 5 stages min)

3. Carrying out a major structural renovations AND applying for a 2-5 stage construction loan ( a construction loan for renovations can be avoided in some instances)


A construction loan is slightly different to a standard home loan, in that the loan is drawn down in a number of stages- also known as progress payments.

Typically there are 5 progress payments or stage; the bank will release payment at each stage and carry out a valuation to make sure the work is done correctly.


1. Slab/foundation ( Including your initial deposit)  - Concrete foundation + pipes and basic plumbing

2. Frame work - Wooden frame work 

3. Lock up/ Enclosure - Roof and Bricks

4. Fixtures - Kitchen, bathrooms, insulation

5. Practical completion - Painting, appliances, electrical work and plumbing 


^ The work carried out for each progress payment may differ builder to builder depending on the design and contract. Some builders may have up to 6-10 progress payments ( 5 is the industry standard)


Typically most builders would want a massive payment or request for a large sum of payout in the first 2 stages- to maximize the amount of money they have access too early on.

Generlly speaking banks will have a maximum percentage they are willing to lend out depending on the design of the property, quality, contract and builder's reputation. 


To avoid hassles and getting played by the builders here is a general rule on the percentage break down for each of the 5 stages


* Maximum of 20% of total cost at slab and foundation stage

* Minimum of 10% of the total cost must be left at the completion stage

* The remaining 3 stages will make up the rest of the 70% of the total cost, no one single stage should exceed 35% of the total cost.


Sum of all stages must equal to 100% of the building contract price.


Example of 2 common progress payments break downConstruction loans and progress payments


Example 1.


1. Slab/foundation ( Including your initial deposit)  -15%

2. Frame work - 15%

3. Lock up/ Enclosure - 35%

4. Fixtures - 25%

5. Practical completion -10%


Example 2.


1. Slab/foundation ( Including your initial deposit)  -15%

2. Frame work - 15%

3. Lock up/ Enclosure - 35%

4. Fixtures - 20%

5. Practical completion -15%



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