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The Construction Loan

Regardless of how you get your home built, there is a lot to think about and a lot to do. It is important to have the finance well organised so you can ensure that your house is built to plan and within budget.

With a construction loan, initially a lender's security will probably be a bare-land section. When construction begins the lender's security is enhanced by the ongoing development of the land but the risk to the lender is that the construction is not completed, leaving it with a section and partially completed house as security for its loan. This outcome is much less desirable for a lender than the common scenario where its loan is secured by a house which is readily saleable.

While a house is under construction the lender carries an increased level of risk because if for any reason construction is not completed the lender could be left with a half-finished project as security for its loan. So, lenders are naturally very careful to ensure that their loan is well secured during the construction phase and that sufficient funding is available to complete the construction as planned. Anything less is unsatisfactory for both parties.

This page is dedicated to the complex topic of building loans.

The construction loan