Building a home is financed differently to buying one. A construction loan releases money in stages as the build progresses, and you only pay interest on what has been drawn. Understood early, the structure is friendly; discovered late, it causes expensive surprises.
The five standard progress payments
- Slab / base: foundations poured, typically 10 to 20% of the contract.
- Frame: walls and roof trusses up, around 15 to 20%.
- Lock-up: external walls, windows and doors in, around 20 to 35%.
- Fit-out / fixing: plumbing, electrics, plaster, kitchen, around 20 to 30%.
- Completion: final payment on practical completion, usually 10 to 15%.
The lender inspects or requests invoices before releasing each stage, which protects you as much as them: the builder gets paid for work actually done.
Interest-only while you build
During construction you pay interest only, and only on the drawn balance. Early in the build that might be a few hundred dollars a month, stepping up with each stage. Once complete, the loan converts to normal principal-and-interest repayments. If you are renting during the build, budget for rent plus the growing interest bill.
What lenders need from you
- A fixed-price building contract from a licensed, insured builder.
- Council-approved plans and specifications.
- A valuation of the completed project ("as if complete"), which sets the lending limit.
- Quotes for anything outside the contract: landscaping, driveways, pools.
The traps
Variations mid-build usually cannot be added to the loan and come from your pocket. Cost overruns on owner-managed extras are the classic budget killer, so hold a contingency of 5 to 10%. And builder delays cost interest: check what your contract says about timelines. For knock-down-rebuilds and renovations, the same structure applies; see the construction loans service or talk it through with Nathan before signing the building contract.