Steps in a construction loan
There are generally six steps in a construction loan, which are:
Preparation - which involves getting the plans, permits, connection fees, insurance, driveway crossings, soil test completed.
Base/slab - This is when the concrete slab is put down and complete or footings and base brickwork complete.
Frame - The house frame is now complete and approved by building surveyor/inspector.
Lock-up - This involves fittings of Windows/doors,roofing, brickwork and insulation.
Fixing - Works related to plaster, kitchen cupboards, appliances, bathroom, toilet, laundry fittings/tiling, heating, fixing/internal doors, etc, plumbing, electrical and painting.
Completion - Fencing, site cleanup and final payment to builder.
A typical feature of a construction loan is an interest-only, variable loan with the loan amount progressively drawn down during each stage of the construction period. You only pay interest on the drawn balance (not the undrawn balance). After completion of the construction, the loan can revert to a Principal and Interest repayment loan or a fixed term loan, as per your need.
