Construction Loans A construction loan that pays your builder in stages, from 50+ lenders.

A construction loan is approved for the full build cost up front but released in stages, matching the progress payment schedule in your building contract. A standard residential build usually has five stages: the base or slab, the frame, lock-up (walls, roof, windows and doors), fixing or fit-out, and completion. Your builder invoices at the end of each stage and the lender pays the invoice, often after an inspection or valuation.

Interest is charged only on what has been drawn. Illustration only: if $400,000 is approved and the first drawdown for the slab is $60,000, interest for that period is calculated on the $60,000, not the full $400,000. As each stage is paid, the balance and the interest rise with it. During the build the loan is typically interest-only, which keeps your repayments low while you may also be paying rent or an existing mortgage.

• A fixed-price building contract with a licensed builder, including the progress payment schedule.
• Council-approved plans and specifications, and the builder's insurances for the build.
• Your deposit or equity: the lender values the land plus the finished home, and borrowing above 80% of that value usually attracts lenders mortgage insurance. If you already own the land, its equity can cover the deposit; if not, the land can be financed with the build.
• The usual application documents: identification, proof of income, and your assets, liabilities and expenses.

Most lenders expect the build to start within a set period of approval and finish within another, and cost overruns are generally for you to fund, so a contract that covers the whole job matters. Our borrowing power calculator gives a starting figure, and the stamp duty calculator covers the land purchase.

At completion the lender makes the final progress payment, usually after a final inspection and the occupancy certificate, and the loan reverts to principal and interest repayments on the full balance, on a variable, fixed or split rate as agreed. That is the point to review the structure, add an offset account or make extra repayments to reduce the balance. See how the finance process works for each step from application to settlement.

Building a new home on land you own or are buying, a house and land package, a knock-down rebuild, or a major renovation that is paid in stages. If you are a first home buyer building a new home, the First Home Owner Grant may apply. If you need to keep living in your current home during the build and sell afterwards, a bridging loan can be structured alongside the building loan. Ask us which lenders suit your plans, including owner-builder projects, which fewer lenders finance.

Construction lending is priced like a standard home loan with two differences. During the build you pay interest only on the amount drawn, so the early repayments are small and grow as each stage is paid. Some lenders charge their standard variable rate on a construction loan and some add a margin for the build period; most reset the rate when the loan reverts to principal and interest at completion, so the rate after the build matters as much as the rate during it.

• Progress payment fees: some lenders charge for each inspection or valuation before a stage is paid; others include them.
• Valuation on the plans: the lender values the land plus the finished home from the plans and the fixed-price contract, before the first drawdown.
• Lenders mortgage insurance if the loan exceeds 80% of that on-completion value.
• Rate type during the build: usually variable; fixing all or part of the loan after completion is a common option.

Because the build-period rate, the reverting rate and the fees differ by lender, a construction loan broker compares the whole cost of the loan, not the headline rate. Use the interest-only mortgage calculator to see what interest-only repayments look like on a drawn balance, and the loan repayment calculator for the principal and interest repayments after completion.

Not every lender offers construction home loans, and the construction finance they do offer differs in ways that decide whether a build runs smoothly:

• Maximum loan-to-value ratio on the land plus the finished home, which sets the deposit or equity you need.
• The build timeframe allowed, and how readily it can be extended if the builder runs late.
• How quickly progress payments are released after each stage claim, since a slow lender can stall a builder.
• Whether owner-builders, kit homes, knock-down rebuilds and house and land packages are accepted.
• The documents required: a fixed-price contract and council-approved plans are standard; some lenders also want builder insurances and a cost report.

Greenline compares construction lending across its panel of 50+ lenders and manages the progress payment paperwork with your builder, so you deal with one person from approval to the final payment.

Your building contract sets the stages and the share of the contract price paid at each one. Illustration only: a common residential schedule looks like this.

Interest accrues on each payment from the day it is made, so a build that reaches lock-up quickly carries more interest earlier. Our borrowing power calculator estimates how much you could borrow for the land and the build together.