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Construction home loans

If you’re building a new home or renovating an existing home, it is important to engage Finance and Mortgage Brokers such as the team at Finance Circle Group who understands the in’s and outs of construction loans and process.

How it works

The Bank will hold the amount required for construction at settlement to make progress payments to your builder at the completion of various stages of your build.

Depending on the value of your property the bank will require a valuation to be made at every stage of your build. With most banks, If your property is less than $600,000.00, Bank will only require a valuation to be made at the first and final stage of your build.

You’ll only pay interest based on your outstanding loan balance at any point in time (noting that, as progress payments are made to your builder over time, your outstanding loan balance will increase)

Banks have different policies and guidelines. Whilst some banks may allow you up to 12 months to start a construction from the loan approval, another bank may want you to commence construction within three months following the settlement of the land loan and must be completed within 24 months of settlement in most instances. We’ll send you a commencement letter with the settlement confirmation.

Most banks prefer a Fixed Price Building Contract (FPBC) and may not like construction loans for owner builders given the higher risk attached to the construction.

Again, with various bank policies, some banks only seek interest only repayments on a variable rate during construction period. With major banks in Australia such as CBA, NAB, Westpac, ANZ and Macquarie, the minimum interest only period is 2 years and the maximum interest only period is 5 years, subject to credit approval (as at Nov 2023 and may change from time to time). You can convert to principal and interest repayments after construction completes or after your interest only period expires.

Stages of construction

Once you have formal approval from a bank, you’ll receive a construction pack with loans contracts along with:

  1. A document guide to be followed for each stage of construction.
  2. Product overview of the construction loan and terms and conditions

There are generally 5 stages of construction plus the initial deposit requirement under FPBC. Progress payments are individual payments, drawn on your loan at each completed stage and paid to your builder. An example of a construction schedule is as follows:

  1. Deposit – Generally at signing of the FPBC at 5%
  2. Base / Foundations / slab  – This is when the foundation/slab is laid down after the deposit has been paid to the builder. 20%
  3. Frame Stage – This is when the framework for the house goes up and the windows have been fixed in position. 20%
  4. Lock-up/external lining – This includes finishing of external walls such as brick work or cladding, the final roof covering and fixing of house doors. 25%
  5. Fixing/internal lining – This is when most internal works, such as installation of walls, ceilings, bathrooms and kitchen cabinets are completed. 20%
  6. Practical completion – This is the last stage of construction. Your home is completed and a Certificate of Occupancy is issued to move into the new home. 10%

How to request a progress payment

Send through a builder’s tax invoice that has been signed and authorised by you with all supporting documents, it will be processed, and you’ll receive an email from the bank or your broker confirming the payment has been made.

If progress inspection is required, the Bank will let the person (generally customer or your broker) who sent us the progress payment request know via email when it’s arranged.

First Home Owner Grant

If you qualify and your First Homeowner Grant application was submitted successfully, the payment will be released after the foundation/slab stage is paid by the bank.

Please discuss your needs and objectives with one of our friendly brokers.

Construction loans frequently asked questions

How do I pay the builder?

With the completion of each stage of your renovation or build, we’ll arrange an inspection of the property and then pay the builder directly for the completed work. Each progress payment is called a drawdown or progress payments.

The number of drawdowns or progress payments will depend on the agreement between you, your builders, and your lender. Loan repayments in constructions loan are interest-only but once the entire renovation is completed, the construction loan will revert to principal & interest repayments, unless you request to extend the interest-only period.

How much does it cost to build a house?

Every house is different, but one thing is for sure, building a new home is exciting. Before you start, it’s important to know how much it will cost so you know how much to borrow. Various guidelines exist to help you ask the right questions and calculate a construction budget.

What is a progressive drawdown process?

Before construction begins, your builder will prepare a contract outlining each construction stage and associated costs. We then progressively drawdown your loan to pay the builders’ costs at each stage. Generally, your construction loan will be interest-only repayments while your home is being built.

How do construction loans work?

A construction loan is for anyone building or renovating a home, instead of buying an established property. They offer cashflow flexibility since they let you progressively drawdown money throughout the construction process, ensuring you only pay interest on the amount you use. 

Construction loan terms, in everyday language

We’ve broken down common construction loan jargon and put it into everyday language for you.

As if valuation

ls conducted by a valuer who will determine what the value of the property will be at the completion of construction. This is usually done before we provide final approval.

Building contract

A legally binding agreement (between you and a builder) which includes and sets out (but is not limited to) the work to be undertaken, plans and specifications, costings, build schedule etc

Builder’s invoices

Your builder’s invoices need to match the Building Contact/Schedule. These are used to confirm your authority for us to release the money to your builder.

Builders licence (also referred to as Registered Builders)

License is required by an individual or company who is signing the contract with the borrower(s) to carry out or organise building work.

Conditional pre-approval

An indication from us that shows how much we are likely to let you borrow based on a review of your financial situation and needs, and it’s subject to certain terms and conditions.

Construction loan

A loan specifically for building or renovating where you can progressively draw money from the loan and only pay interest on the money you ‘ve used.

Council approval

This means your local council (or authorised agent acting on their behalf) will determine if your building plans and specifications meet the criteria, zoning requirements, laws, policies and legislation of the local area.

Council Approved Plans for South Australia:

Building plans must be stamped by council/State Planning Commission, and a Decision Notification Form needs to be obtained evidencing Planning, Building and Development Approval are all “Granted”.

Certificate of Occupancy and Compliance (or equivalent)

Is a certificate that confirms the construction has met all required standards and authorises occupation of the building. This is issued by the local authority, e.g. local council, at the end of the construction.

Commencement Letter

After your loan is formally approved by the bank, and all construction and sign loan contracts are held by the bank, a commencement letter will be sent by the bank. This is bank’s formal approval that construction can commence and you can start building your home.

Consumer Credit Contract Schedule

This sets out key details of your Contract or the Contract if varied.

Disclosure Date

The Contract Schedule is dated day the loan contracts are generated by the bank. This date is Disclosure Date and is stated on the loan contracts as well.

Draw (also referred to as drawn)

This is the progressive reduction of the available money from your construction loan as we make progress payments to your builder. This allows for lower interest payments as interest is only charged

on the amount(s) drawn.


These are diagrams that show (to scale and in detail) what the exterior and/or interior

walls (faces) of a building look like from a particular direction.

Equity contribution (also known as Owner’s contribution)

If you’re required to make monetary contributions from your own money (such as savings) towards your construction loan, this is known as equity contribution or owners’ contribution. Keep in mind the amount that you need to contribute depends on your application. Contact your Broker for further information.

Final inspection

On completion of your construction, we will arrange for a final property inspection to confirm all works to the property are finished.

Interest Only payments

The minimum payments only cover the interest charges on the loan and do not reduce the loan balance. Interest only payments are for an agreed period of time.

Out of Contract items

These are additional improvements or renovations being completed in conjunction with your construction, however, may not form part of the fixed price building contract. They’re restricted to non-structural works, such as floor and window coverings.

Principal and Interest repayments

The minimum repayments cover the interest charges and some of the principal loan balance.

Progress payment

Payments made directly to your builder at different stages of construction. There are

normally 5 to 6 progress payments depending on your Building Contract and Progress Payment Schedule.

Plans and Specifications

The term plan refers to drawings (usually prepared by the building company or architect) of the building to be constructed.


A valuation is an opinion about the market value of a property asset at a specific date, by a person authorized to undertake valuations for security purposes.

This article is general and has not taken into account your objectives, financial situation, or needs. Consider whether any advice is right for you. You may need financial advice from a qualified adviser. Consider the product disclosure statement (PDS) before making any financial decision.