Construction Progress Payments: Information about construction loans
What is a construction progress payment?
A construction loan 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 draw down payment.
Typically builders request five progress payments. One at
the completion of each major stage of construction. A progress payment is where
your lender pays your builder directly for this progress made on your construction.
The lender will not pay the construction progress payment immediately.
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.
Usually residential property construction projects are split
into five stages and with a progression payment due at the end of each stage.
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.
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 do I get a progress payment made?
The first progress
payment
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).
·
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.
Subsequent progress
payments
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.
Requesting you final
progress payment
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.
You may need to provide additional documents to the lender
prior to the final 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.
Want to know more about the construction loans? Find out about the construction loan process.
