Construction Home Loans

A construction loan is approved for the land and building costs, but the construction funds are released progressively rather than as one lump sum. As each agreed stage is completed, the lender pays the builder through a progress payment.

During construction, you generally pay interest only on the amount drawn so far. Once the build is complete and the final payment has been made, the loan usually converts to normal principal and interest repayments.

The exact requirements vary between lenders, but you will generally need:

• A signed fixed-price building contract
• Council-approved building plans and specifications
• A progress payment schedule
• Builder’s insurance and licence details
• Quotes for work not included in the building contract
• Evidence of your deposit, savings or available equity
• Your usual income, expense, asset and liability documents

The lender will also arrange a valuation based on the proposed completed property.

The deposit depends on the total project cost, the lender’s valuation, your financial position and whether you qualify for any first-home buyer assistance.

Some lenders may allow construction finance with less than a 20% deposit, although Lenders Mortgage Insurance or a government guarantee may apply. If you already own the land or another property, the available equity may also form part of your contribution.

You will normally need to use your contribution before the lender begins releasing all available construction funds.

Potentially, yes. If you already own the land or have sufficient equity in another property, that equity may be used towards the deposit and upfront costs.

The structure matters. Where equity is released from another property, it may be preferable to keep that borrowing in a separate loan split so its purpose remains clear, particularly when building an investment property.

Most lenders charge interest only on the amount that has been drawn, not the full approved construction loan.

Your repayments therefore usually start lower and increase after each progress payment. You may still need to cover rent or repayments on another property during the build, so it is important to allow for this overlap in your budget.

Your builder will issue an invoice when a stage has been completed. You then review and authorise the payment request before sending it to the lender.

Depending on the lender and stage of construction, an inspection or updated valuation may be required before the funds are released. Payment processing can take time, so invoices should be submitted promptly to avoid unnecessary delays.

The lender assesses the property based on its expected value when construction is complete. This valuation may be lower than the combined price of the land, building contract, upgrades and other costs.

If there is a valuation shortfall, you may need to contribute more of your own funds, reduce the project cost or consider another lender. This is one reason finance should be properly assessed before you commit to a building contract.

Not automatically. The lender approves the loan using the original building contract, plans, specifications and valuation.

If you request upgrades or variations after approval, you may need to pay for them from your own funds. A significant variation may require the lender to reassess the loan or order another valuation.

It is sensible to finalise as many selections as possible before signing and keep a separate cash buffer for changes and unexpected costs.

Items outside the fixed-price contract can include landscaping, fencing, window coverings, upgraded flooring, driveways, retaining walls, additional site works and utility connections.

These expenses may not be covered by the construction loan unless they were included in the original application and accepted by the lender. Check the contract carefully and prepare a complete project budget before committing.

Construction loans are generally approved with a required commencement and completion period. If the build is delayed, the lender may ask for updated documents, extend the construction period or reassess parts of the application.

You should also budget for the effect of delays on rent, existing loan repayments, storage and other holding costs.

Yes, but the land loan may initially be assessed separately from the future construction loan. When you are ready to build, the lender will need to assess the building contract, plans, completed-property valuation and your financial position at that time.

Approval for the land does not guarantee approval for the later construction costs. If possible, it is worth assessing the complete land-and-build strategy before purchasing the block.

This depends on the lender and loan product. Some construction loans offer an offset account, while others provide more limited features during the construction period.

An offset may help reduce interest while you retain money for variations, rent and other building expenses. The available features, fees and interest rate should be considered as part of the lender comparison.

Eligible first-home buyers may qualify for the First Home Owner Grant when building or purchasing a new home. Property value limits, contract dates, residency requirements and other eligibility rules apply.

Grant amounts and government scheme rules can change, so confirm your eligibility before relying on the grant as part of your deposit or building budget.

Potentially, yes. Many lenders will consider one or two dwellings under residential construction lending, subject to the zoning, valuation, proposed use and overall application.

More complex projects, subdivisions or developments involving three or more dwellings may be assessed under commercial or development finance policies instead.

Potentially, yes. Many lenders will consider one or two dwellings under residential construction lending, subject to the zoning, valuation, proposed use and overall application.

More complex projects, subdivisions or developments involving three or more dwellings may be assessed under commercial or development finance policies instead.