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Construction Loans
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Does a Construction Loan Fit My Needs?
Are you building a new home or making major renovations to your existing home? If you plan to sign a building contract with a licenced builder, you can get a construction loan (also known as a building loan).
A construction loan provides a safety net for your finances while building takes place—you are guaranteed that your home is being completed on the same timeline as the disbursement of your loan.
Construction Loans Versus Home Loans
A construction loan is a type of home loan in which you don’t borrow the entire lump sum at the start of the project. Instead, the total loan amount is divided into payments, called progress draws, that are released throughout the construction stages.These loans offer financial flexibility because you only pay interest on the loan as it’s released. In fact, most lenders only expect you to pay the loan interest throughout construction. When the project is complete and the progress draws are fully drawn down, the loan usually reverts to a standard home loan, in which you pay principal + interest until the loan is fully repaid.
Is a construction loan right for you?
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How Can I Get a Construction Loan?
There are a few steps when you apply for a construction loan, and our team simplifies the process. Starting with one of the most important steps, get an estimated market value of your finished project. This determines the amount you qualify to borrow, and it protects you from falling short of funds to complete the project, as well as reduces the risk of loan default for the lender.
Next, choose a registered builder who will help you complete the council plans and get permits, and you’ll also get insurance. These documents are part of your loan application.
Rather than pulling all these pieces together on your own, and then applying for loans across several providers, our team manages the process on your behalf. We’ve successfully taken hundreds of clients through this process, and we streamline the process while being your advocate for the best loan package.
Curious about lending possibilities?
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What Are the Phases of a Construction Loan?
Once your loan is secured, the lender is involved throughout construction: checking quotes, reviewing plans and contracts and ensuring documents meet the industry standards.
The lender also monitors the construction process and only makes progress payments when the builder reaches specific objectives and meets satisfactory standards.
Throughout the stages, you provide invoices to the lender so that payments are released to the builder. The construction stages are usually set up as:
- Foundations/footings
- Framing and Roof
- Lock up
- Fitout
- Practical completion
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WE ARE TRUSTWORTHY
Why Partner with Intellichoice?
New construction and renovations are both exciting and stressful: there are many factors to consider before you even choose your first paint colour! To reduce some of the time and strain it takes to manage the financial side of the project, let us put our expertise to work for you.
- Spend your time choosing fixtures, not finding lenders. We’ll save you time up-front by putting together a comprehensive application that meets lender requirements.
- Get the best rates. With access to more than 50 lenders, we source the best loan package for your specific construction needs.
- Simplify the process. We guide you through the paperwork and create a straightforward experience.
- Work with a responsive team. We partner with you from start to finish and stay in touch every step of the way.
Interested in getting a loan?
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Frequently Asked Questions
What is a construction loan?A construction loan is a type of home loan used to finance the building of a new property. Unlike a standard mortgage, the full amount isn’t released upfront. Instead, funds are paid out in stages as construction progresses, known as progress draws. You only pay interest on the funds drawn down at each stage, keeping repayments lower while your home is being built.
How do construction loan repayments work?During the build, construction loan repayments are typically interest-only on the funds drawn down at each stage, not the full loan amount. This keeps repayments manageable while construction is underway. Once the build is complete and all progress draws are finalised, the loan converts to a standard principal and interest structure, and you begin repaying the full construction loan balance.
What deposit do I need for a construction loan?Most lenders require a minimum 20% deposit on the total construction loan project cost to avoid Lenders Mortgage Insurance (LMI). This is calculated on the combined value of your land and building contract. If your deposit is below 20%, LMI will likely apply, which adds to your overall borrowing costs. A construction finance broker can help you find lenders suited to your deposit size.
How are construction loan progress payments released?Construction loan funds are released in stages, known as progress draws, as each phase of the build is completed. These stages typically include slab or foundations, framing and roof, lock-up, fitout, and practical completion. Before each payment is made to your builder, the lender reviews invoices and may conduct a site inspection to confirm work meets the required standard.
What documents do I need to apply for a construction loan?To apply for a construction loan, you’ll generally need a signed building contract with a licensed builder, council-approved plans, construction specifications, and standard financial documents including proof of income and recent bank statements. Having these ready upfront speeds up the approval process. A construction finance broker can help you prepare a complete application and manage the paperwork on your behalf.
Can I make changes to my build during a construction loan?Yes, but any variations to the building contract must be formally approved by your lender before work proceeds. Changes can affect your total construction loan amount, progress payment schedule, and overall project timeline. Unapproved variations can delay fund releases to your builder, so it’s important to communicate changes early and work with your construction finance broker to keep everything on track.
How does a construction loan work in Australia?A construction loan in Australia releases funds progressively throughout the build, typically across five stages: foundations, framing, lock-up, fitout, and practical completion. During construction, repayments are interest-only on the amount drawn. Once the build is complete, the loan usually converts to a standard principal and interest home construction loan.
What is the difference between a construction loan and a home loan?A standard home loan releases the full amount at settlement. A construction loan releases funds in stages aligned to build milestones, so you only pay interest on what has been drawn. This provides greater financial flexibility during the build period. Once construction is complete, a construction loan typically reverts to a standard home loan structure.
What is the difference between a construction loan and an owner builder loan?A standard construction loan requires you to engage a licensed builder under a formal building contract. An owner builder loan is for those who intend to manage and physically contribute to the build themselves. Owner builder loans typically have stricter requirements and fewer lenders. If you’re unsure which applies to your situation, a mortgage broker can help clarify the right construction loan type for your project.