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Construction loans
Build or renovate with a tailored construction loan that makes your home dreams come true
Build a new home or do major renovations
Found the perfect patch of land? Dreaming of designing and building your own home? Or breathing new life into an old property?
If you're embarking on the journey of building your dream home, our team is here to guide you through the complexities of a construction loan. We understand that building your own home is a significant investment, as well as an exciting personal journey, and we're committed to making it one you remember fondly.
At My Finance Agent, we specialise in tailoring construction loans that match your unique needs and financial situation to our panel of 40+ lenders. Our expert advice and VIP customer service has been proven to help countless Australians achieve their building dreams.
Discover the benefits of a construction loan and how My Finance Agent can help.
Keep reading to discover...
Everything you need to know about construction loans in Australia:
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How construction loans work
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Key features of a construction loan
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How to apply for a construction loan
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Frequently asked questions about construction loans
Let's go!
What is a construction loan?
A construction loan is a specialised type of mortgage designed to fund the construction of a new property or the major renovation of an existing one. Unlike traditional mortgages, where the entire loan amount is disbursed upfront, a construction loan provides funds in stages as construction progresses.
This phased approach helps you, the borrow, manage project costs and ensures that funds are allocated as the builder — or contractors, in the case of an owner-builder project — earn them. The idea is to provide both the lender and borrower with flexibility and financial control through the construction process.
Key features of a construction loan
The release of funds as progress payments offers number of important benefits:
Lower interest exposure
Because the loan balance is released in stages, you are only charged interest on the balance of funds that have been drawn down. For example, if your total approved loan is for $500,000, but you have only drawn down $100,000 so far, interest is charged on the lower amount during the construction phase.
Protection for the borrower
Lenders will generally conduct inspections of the project before releasing progress payments. For the borrower, this means you have an extra set of eyes on the job and peace of mind that incomplete or unsatisfactory work may be identified and fixed before work is paid for.
Help manage cash flow
Managing cash flow for a building or renovation project can be challenging because expenses generally come in waves. It helps, then, that construction lenders charge interest-only during the construction period and the loan only reverts to a principal-and-interest (P&I) loan upon completion. This lowers your loan repayments during construction and helps with cash flow management.
Did you know... As your broker, we may also assist by coordinating inspections and progress payments?
A construction loan differs from a traditional home loan in the following ways:
Construction loan application requirements
Applying for a construction loan requires the borrower to provide more information than needed with a conventional home loan. In addition to identification and credit checking, the lender will ask for some or all of:
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Building contract (do not sign it unless it includes an exit clause based on your ability to get finance) or tender
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Builder's license and insurance details
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Building plans and specifications
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Quotes for additional building works (e.g. pool, fences, sheds, concrete, and landscaping)
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Council approvals
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Quantity surveyor report
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Soil tests and engineering reports
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Other information, as needed
Construction loan borrowing amount
Construction lending is considered more risky for lenders because, before construction, there is no dwelling to secure the loan against. The project value will be an estimate of what the house will be worth once it is finished. Most construction lenders will conservatively lend up to 70% of the build value. However, experienced professional builders may be approved for up to 80% to 95%.
How do construction loans work?
Progress payment schedule
Your builder and lender will agree on a progress payment schedule—also known as a draw schedule—which determines how much money is paid out during construction and when. The disbursement of funds coincides with the stages of construction, usually:
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Block clearance: Demolition and site preparation
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Slab: Foundations, slab and pre-plumbing
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Framing and/or brickwork: External and internal framing and external cladding
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Lock-up: Roof, walls, doors and windows
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Fit-out: Internal fittings, such as benchtops, taps and light fittings
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Completion and handover: Project is finished, including site clean-up
Construction loan progress payments
Funds are released in instalments, known as progress payments. If you are working with a builder, the payments will go to the builder or contractors, if you are an owner-builder, based on the completed stages outlined in the draw schedule. erally not tax deductible.
Construction loan fees and charges
Some lenders charge an upfront administration fee as part of the construction loan approval process, potentially up to around $1000. Others may charge a fee at each stage of construction, or as they release funds (often around $100 per disbursement), or higher monthly fees in lieu of progress payment fees. As your broker, we will make sure that these costs are fully explored and compared.
Construction loan fees and charges
Some lenders charge an upfront administration fee as part of the construction loan approval process, potentially up to around $1000. Others may charge a fee at each stage of construction or as they release funds, often around $100 per disbursement, or higher monthly fees in lieu of progress payment fees. As your broker, we will make sure that these costs are fully explored and compared.
Construction insurance
Whether you are using a licensed builder or acting as an owner-builder (a person who does a residential building project on their own without employing a licensed builder to oversee the project), lender may ask for evidence of insurance to cover you in case something goes wrong during construction. This may include:
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Construction works insurance
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Public liability insurance
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Home Insurance
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Personal accident and injury insurance
Interest-only payments during the construction phase
During the construction phase, you will only pay interest on the funds disbursed. As already discussed on this page, this keeps your initial payments lower and helps with cash flow management during the build.
Conversion to mortgage at completion
Once construction is complete, the loan transitions into a traditional mortgage, and you begin making principal and interest payments based on the agreed loan terms.
As well as advising you as a construction loan expert, I have personal experience being an owner-builder. I would be pleased to guide your building journey and help you secure the right construction loan.
CHRISTOPHER JONSON
Director and finance broker
How to apply for a construction loan
My Finance Agent will guide you through the construction loan process every step of the way, from putting an initial budget together to delivering a housewarming gift!
Here is a summary of what to expect:
1. Prepare and plan
You may have already bought a block of land and have quotes from builders. Or perhaps you're still at the thinking stage. Either way, we can help to evaluate your situation and determine how much you can comfortably afford to borrow based on your income and financial situation. For those who are ready to take the next step...
2. Compare lenders and loan options
Having discussed your construction project, builder quotes and financial situation in detail, we will research our panel of lenders and present you with our analysis and recommendations. We work with more than 40 lenders, including Australia's big banks and quality niche lenders. We will come back to you with a shortlist of loan recommendations, along with a detailed look at the pros and cons of each loan product.
3. Submit your loan application
Once you've chosen a preferred lender, we will coordinate your loan application. For your ease, we have honed our loan application process to be smooth, fast and streamlined. Please keep reading down the page to see which documents you will need.
4. Receive your loan approval
Once approved, you'll receive a formal loan offer from the lender detailing the terms and conditions of your loan. The loan contract will specify any interest-only period and other conditions. We will help you to review the loan documents to ensure that everything is in order.
5. Create a progress payment schedule
In conjunction with the lender, we will collaborate with your builder to create a detailed progress payment schedule outlining the construction stages and funds needed at each stage. Depending on the lender, we may also be involved in the disbursement of funds during the construction phase.
6. Coordinate inspections and payments
As construction progresses, the builder will give you invoices to submit to the lender for payment. It's good to be aware that some lenders charge progress payment fees. We have handy tips for helping you minimise these costs. The lender will also conduct regular inspections to verify completed building stages.
7. Construction loan transitions to a normal mortgage
When construction is complete and all inspections have been finalised, your construction loan will transition into a conventional mortgage. You will begin making regular payments based on the agreed loan terms.
8. We keep looking after you
Most brokers will consider their job done at this point. But at My Finance Agent, we automatically conduct a loan review at 12 months, and every year as long as your loan is active. During your annual review, we see if we can improve your loan rate or other terms. When you choose My Finance Agent as your trusted broker, you know that we are always looking out for your best interests.
Understanding the ins and outs of a construction loan is crucial before embarking on your home construction journey. We are invested in guiding you through the entire process.
BELINDA SLATER
Finance broker
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Frequently asked questions about construction loans
How much can I borrow for a construction loan?
How much you can borrow will depend on a variety of factors, such as your income, assets, debts and expenses. The lender may also choose to factor in cost overruns and other margins designed to provide protections for them and you. Our team would be pleased to calculate the exact numbers for you, based on your situation.
What documents do I need for a construction loan application?
In addition to the same information required for a traditional home loan, the lender may also ask for a combination of:
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Building contract (do not sign it unless it includes an exit clause based on your ability to get finance) or tender
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Builder's license and insurance details
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Building plans and specifications
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Quotes for additional building works (e.g., pool, fences, sheds, concrete and landscaping)
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Council approvals
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Quantity surveyor report
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Soil tests and engineering reports
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Other information, as needed
If this sounds like a lot of work, don't worry. We have a streamlined process for uploading and managing your loan application and supporting documents.
Can I get a construction loan as an owner-builder?
We have helped many of owner-builders get construction loans and would be pleased to talk with you about your project and lending needs. Owner-builder projects may be subject to a different approval policy and lending criteria, which can differ between lenders. These extra requirements are designed to provide you and lender with extra protections. For example, the lender may require you to engage a quantity surveyor to confirm your cost estimates.
What are the stages of construction?
Generally speaking, progress payments are organised into five stages:
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Slab - site preparation, foundations, slab, and pre-plumbing are completed (funds required: approximately 15-20%)
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Frame - the internal frame goes up (funds required: approximately 20%)
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Lock-up - roof, walls, doors, and windows go in (funds required: approximately 20%)
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Fit-out - internal fittings, such as benchtops, taps, and light fittings, go in (funds required: approximately 20%)
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Completion - the building is completed, including site clean-up (funds required: approximately 10%)
What happens if I go over budget or need extra money during construction?
It's important to understand that the lender will only pay up to the agreed amount stated in the progress payment schedule for each stage of construction. If your invoices are higher than the agreed amount, you will need to pay the balance from your own money. If you would like to borrow more money for the building project, a new loan application will be required, along with supporting documentation. That's where working with an experienced construction loan broker like My Finance Agent can give you an advantage. We can help with realistic budgeting and project management tips to ensure that your progress payments go smoothly.
Can I use a construction loan for home renovations?
Typically, construction loans are intended for financing a new home build or major structural changes to an existing property, rather than minor home renovations. For smaller-scale renovations, it may be better to consider a home equity refinance loan. A home equity line of credit may offer financial flexibility without the complexities of a building contract, draw schedule, and disbursements. We would be pleased to help you look at all of your lending options.
Will I qualify for a first homeowner grant if I build?
If you are a first-time homeowner, there are a number of state and federal schemes that provide funding and other incentives for building a new home. Visit our First Home Buyer Loans page for more information. Better still, talk with our team for tailored advice!
When you choose My Finance Agent, you can rely on us to become a reliable and organised member of your project team. We can help with smoothing progress payments and liaising with your lender, which frees up your time for other things.
GREG ROBINSON
Finance Broker
Serving all of Australia
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Bathurst offices
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