Construction Loans

When purchasing an existing property, the lender generally provides the full loan amount at settlement. With a construction loan, funds are usually released in stages as the build progresses.

These progress payments are typically linked to construction milestones such as the slab, frame, lock-up and completion stages. This means construction loans involve additional documentation and lender requirements compared to a standard home loan.

The required deposit depends on the lender, the type of project and your overall financial position.

Some borrowers use savings for their deposit, while others may use equity from an existing property. The amount required can vary depending on the land value, construction costs and lender policy.

Yes, many lenders offer combined land and construction loans.

This can allow you to finance both the land purchase and the construction costs under a single lending facility. The structure and timing of the loan will depend on the lender and the stage of the project.

Most lenders prefer a fixed-price building contract because it provides certainty around the total construction cost.

A fixed-price contract can also reduce the risk of budget overruns and helps the lender assess the project's viability before approving the loan.

Progress payments are instalments released by the lender as construction reaches agreed stages.

Rather than receiving the entire loan upfront, funds are typically paid directly to the builder throughout the build. This helps ensure construction is progressing before additional funds are released.

Usually not.

Many construction loans only require repayments on the amount that has been drawn down at each stage of the build. As construction progresses and additional funds are released, the repayment amount may gradually increase.

Unexpected variations or upgrades can occur during construction.

If the total project cost increases, additional funds may need to be contributed by the borrower. This is one reason many borrowers choose to maintain a contingency buffer for unexpected expenses.

Delays can occur when documents are incomplete, council approvals are outstanding, valuations take longer than expected or builder information is missing.

Having plans, contracts and supporting documents prepared early can often help keep the approval process moving smoothly.

Yes.

Construction loans can be used for both owner-occupied and investment properties, subject to lender criteria. The lending requirements, deposit requirements and interest rates may differ depending on the intended use of the property.

Potentially.

Many homeowners use available equity from their current property to help fund a deposit, construction costs or associated expenses. The amount available will depend on your property's value, existing loan balance and lender assessment.

Construction loan valuations are generally based on the proposed completed property rather than the vacant land alone.

If the valuation is lower than expected, it may affect the amount a lender is willing to provide and could require additional funds from the borrower.

In many cases, yes.

Understanding your borrowing capacity and finance options before committing to a builder can help set realistic expectations around budget, land purchases and construction costs. It may also reduce the risk of signing a contract that doesn't align with your available finance.

Yes, although the documentation requirements are often different from those for PAYG employees.

Many self-employed borrowers successfully obtain construction finance each year. The lender may require tax returns, financial statements or other evidence of income depending on the circumstances.

Construction lending involves more than just assessing income and expenses.

Lenders will generally review the borrower, builder, construction contract, plans, land value and overall project viability. A strong application is often about having the right structure, documentation and lender for the project rather than simply meeting minimum borrowing requirements.

One of the most common mistakes is focusing only on the construction cost and forgetting about the other expenses involved.

Site costs, council fees, landscaping, driveways, fencing, upgrades and unexpected variations can quickly add up. Having a realistic budget and some financial flexibility can help reduce stress during the build process.