New to the construction loan gang? There are so many requirements, stages, and considerations that you need a guide to navigate it. Avoid these common mistakes while applying for a construction loan in Melbourne.
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Underestimating the Total Construction Costs
Always overestimate, or at least plan ahead of the total construction costs to be on the safer side. The estimated cost on average is $473,000. The initial estimate can always be exceeded due to weather delays, material shortages, unexpected labour costs, and more.
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Not Having a Fixed-Price Contract
Fixed-price contracts prevent potential conflicts between the lender and builder. Always have things decided, written and lock everything in advance to avoid the risks of loan amount reassessment due to a rise in costs.,
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Inadequate Documentation
Small business loans in Melbourne require a lot of documents, so make sure you have everything–a building contract, approved council plans, detailed construction specifications, and a drawdown schedule. Outdated or incomplete documents can cause unnecessary delays in the process leading to more holding costs.
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Overlooking the Importance of Progress Payments
Construction loan payments are processed in stages, also called progress payments. Borrowers should ensure effective coordination between the lender and builder during these payments. Ask your builder to provide invoices and updates regularly to keep everything on track.
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Not Accounting for Interest-Only Payments
Construction loans in Melbourne are very tricky to manage. You have to make interest-only payments every month for a year or even longer. Do not underestimate these costs or they will increase your loan’s overall expense by up to 7%.
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Choosing the Wrong Builder
What is a construction project without an experienced and reliable builder? Nothing. Take your time in researching the best and most reputable builder to avoid project delays, cost overruns, and potential disputes with lenders.
All Set for Your Construction Project?
Careful planning, a clear understanding of the terms and conditions, and thorough documentation are all you need for a successful construction project. Want to have it easy? Partner with a reputable financial company that helps you avoid these mistakes and make your construction project a success.
