Understand how construction home loans work, when progress payments occur and what borrowers should prepare before building.
How construction finance differs
A construction home loan is commonly structured around the cost of the land and approved building works. Rather than advancing the entire construction amount at settlement, lenders may release funds progressively as agreed stages of the build are completed.
During construction, interest may be charged on amounts drawn rather than the full approved facility, subject to the loan's terms. The exact repayment arrangement varies by lender.
What are progress payments?
A building contract typically divides construction into milestones, such as base or slab, frame, lock-up, fit-out and completion. Your builder submits a progress claim and the lender may require evidence or an inspection before releasing funds.
The names, proportions and number of stages differ between contracts. Review the builder's progress schedule with your broker and conveyancer before signing.
Documents lenders commonly request
Construction loan applications may require an executed building contract, detailed plans and specifications, council approvals where relevant, builder licensing and insurance information, cost estimates and a valuation of the completed property.
Changes to the scope after approval can require additional assessment. Keeping the contract and inclusions clear early can reduce unexpected funding gaps.
Budget for more than the build price
Allow for site works, variations, landscaping, fencing, utility connections, holding costs and temporary accommodation where appropriate. A contingency buffer is important when delays or cost changes occur.
For land-and-build purchases, understand whether the land loan settles before construction and how repayments work during the gap.
Talk through the timeline
A construction loan broker can compare lender requirements, explain drawdown procedures and help identify issues before the builder invoices you. Confirm expected completion dates, loan review requirements and what happens if construction takes longer than planned.
Useful resources
For general consumer guidance, see ASIC Moneysmart. For tailored home loan assistance, speak with Fulton Financial.
General information only. Loan suitability, features, fees and eligibility depend on your circumstances and lender requirements. Consider obtaining independent legal, tax or financial advice where appropriate.
