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Construction Progress Payments: Information about construction loans
What is a construction progress payment?
A construction progress payment is a payment made by the bank or lender on completion of a building stage according to the agreed schedule. This is often called a construction loan draw down payment. The progress payment is made by your lender directly to your builder for the progress made on your construction and you get a draw down on your construction loan. Payment should only be made to the person or company whose name appears on the building contract and at the times nominated in your building contract.
How many progress payments will there be?
Typically builders request five progress payments. One at the completion of each major stage of construction.
Usually residential property construction projects are split into five stages and with a progression payment due at the end of each stage:
- the slab
- the frame
- the outer brickwork
- workable completion
The fixed price contract agreed to by you and your builder will state how many payments, how much for each payment and when the payments are due. Your lender will make the payments according to the schedule in your building contract.
How long does it take for lenders to make the progress payments?
The lender will not pay the construction progress payment immediately on your request. It can take up to 10 working days to process the first and last progress payments and five working days to process other progress payments. It is a good idea to call your lender after you send progress payment request to ensure that they are aware of it and are acting the payment.
How do I get a progress payment made?
To have the first progress payment paid you will need to provide the following documents to the lender:
- The first progress payment request;
- Approved Council plans;
- Fixed price building contract Signed buy you and your builder;
- Building permit (VIC) or Construction certificate (NSW) or Decision notice (QLD);
- Builders Insurance (certificate of currency); and
- Builders Indemnity / Public Risk Insurance to a level acceptable to your lender.
Allow sufficient time for your lender to receive and process the documents prior to expecting the progress payment to be paid.
To get subsequent progress payments you will need to send to your bank or lender the following documents:
- A signed progress payment request form (available from your lender) OR a signed letter from you authorising payment.
- A copy of the invoice from the builder. Some lender will require you to sign the builder’s invoice.
You and your builder may need to allow a representative from your bank or lender to access the building site to inspect the progress and check that the construction is to an acceptable level of workmanship. Some lenders will charge you a fee for each inspection.
You may also be charged a drawdown fee to cover your bank or lender’s cost of dispersing the funds.
You may need to provide additional documents to the lender prior to the receiving the final construction loan progress payment. Contact your lender to confirm what these will be. Typically these will be:
A Certificate of Occupancy, also called Occupancy Permit, Final Occupation Certificate or Certificate of Classification. This is to show that the building is up to the relevant standards and is safe to be lived in.
A copy of your building insurance with enough cover to replace the building. This copy must also include your bank or lender’s name on the policy;
A signed progress payment request form (available from your lender) OR a signed letter from you authorising payment; and
A copy of the invoice from the builder. Some lender will require you to sign the builder’s invoice.
Your bank or lender will usually send a valuer to inspect your finished property to confirm that it has been completed according to the plans and specifications of the building contract. Payment will be withheld if all of the contracted works have not be completed.
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