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Construction Loans
Progressive drawdowns managed from slab to handover, not just an approval and a handshake.
Construction finance
Construction loans, and the part most brokers skip
A construction loan releases money in stages as your build progresses, typically five: slab, frame, lock-up, fit-out and completion. You pay interest only on what has been drawn, so repayments start small and reach their full level after the final drawdown. Each progress payment takes roughly five to ten business days from the builder issuing the claim to funds landing, because the lender sends a valuer to confirm the stage before releasing money.
Construction finance is not a harder version of a home loan. It is a different product with a twelve to eighteen month administrative tail, and the work sits almost entirely after settlement rather than before it.
We manage progress claims on our clients behalf for the whole build. The builder invoices, it comes to us, and it goes to the lender the same day. That single habit is worth more to a build program than any rate we could negotiate.
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Construction Loans
What we can help you with
House and Land Packages
Two contracts, two valuations and title registration risk. We approve land and construction together wherever the lender allows it.
Knockdown and Rebuild
Valued on an as-if-complete basis while the old house is still standing. We handle the demolition funding gap.
Duplex and Dual Occupancy
Some lenders avoid these, others actively support them. We know which, and how to present the application.
Dual Key Investments
Two dwellings, one title, two income streams. Valuation and rental assessment both need careful handling.
Progressive Drawdown Management
We submit every progress claim the day the builder issues it, for the whole build.
Owner Builder Finance
A narrower lender pool and lower maximum LVRs, but it is possible. We will tell you honestly what is available.
The five drawdown stages, and what each one pays
Lenders and builders use broadly the same stage names. The percentages below are the common split on a fixed price residential contract, but your contract is what the lender actually pays against.
| Stage | Typical % of contract | What must be complete | Typical elapsed time |
|---|---|---|---|
| Deposit | 5% | Contract signed, approval in hand | At or shortly after land settlement |
| Base or slab | 15% to 20% | Site cleared, footings poured, slab down and cured | Weeks 1 to 6 |
| Frame | 20% | Frame erected and frame inspection passed | Weeks 6 to 12 |
| Lock-up | 25% to 35% | Roof, external walls, windows and external doors in | Weeks 12 to 22 |
| Fit-out or fixing | 20% | Internal linings, cabinetry, doors, skirting, tiling | Weeks 22 to 32 |
| Practical completion | 5% to 10% | Finished, final inspection passed, handover | Weeks 32 to 44 |
Indicative only, based on standard fixed price residential contracts. Timeframes assume a single or standard double storey build without significant delay.
What your repayments do through the build
You pay interest only on the drawn balance. Repayments therefore climb steadily, and most people building are also paying rent or an existing mortgage at the same time. Budget for the completion figure plus your current housing cost from day one.
| Stage | Cumulative drawn | Approximate monthly interest |
|---|---|---|
| Land settled | $600,000 | $3,000 |
| After slab (20%) | $700,000 | $3,500 |
| After frame (40%) | $800,000 | $4,000 |
| After lock-up (70%) | $950,000 | $4,750 |
| After fit-out (90%) | $1,050,000 | $5,250 |
| Practical completion (100%) | $1,100,000 | $5,500 |
Illustrative only at a flat 6.0% p.a. interest only. Rates vary by lender and change over time. Not a quote or an offer of credit.
Knockdown rebuilds: how the valuation works
A knockdown rebuild is financed as a construction loan secured against the land. The lender values the property on an as-if-complete basis using the stamped plans and the fixed price contract, while the existing house is still standing. The old dwelling is effectively ignored other than as a cost to remove.
That structure works because the completed value is usually well above the total borrowing, so the loan to value ratio at completion is modest even where the borrower is funding almost the entire build.
| Item | Amount | Notes |
|---|---|---|
| Land value with existing dwelling | $850,000 | Current value |
| Existing mortgage | $300,000 | Refinanced into the construction facility |
| Demolition | $35,000 | Often funded outside the building contract |
| Fixed price build contract | $720,000 | Drawn in stages |
| As-if-complete valuation | $1,650,000 | Land plus completed dwelling |
| Total borrowing required | $1,055,000 | Existing debt plus demolition plus build |
| Loan to value on completion | 64% | Comfortably inside standard policy |
Illustrative only. Your land value, contract price and valuation will differ. Not a quote or an indication of approval.
Demolition, the funding gap
In Sydney a standard single storey demolition runs roughly $25,000 to $45,000, and asbestos removal pushes it higher. Houses built before the late 1980s frequently have asbestos in the eaves, bathroom sheeting or fencing.
Where demolition sits inside the builder fixed price contract it is funded as part of the first drawdown. Where it is a separate contract, which is common, many lenders will not fund it from the construction facility, which means cash or an equity release completed before the build facility starts. Getting that sequencing right early matters, because a demolition that has already happened changes the security position and complicates the valuation.
What lenders require before they approve
- A fixed price building contract. Cost plus arrangements are difficult to finance and some lenders decline them outright.
- Council approval or a complying development certificate, with stamped plans matching the contract.
- Builder home warranty insurance for the contract value, in your name, before the first drawdown.
- The full specification and inclusions schedule. Valuers value what is specified, so vague inclusions produce conservative valuations.
- Current builder licence details for the scope of work.
- A BASIX certificate for the new dwelling.
- Evidence of where you will live during the build, because rent is assessed alongside your loan repayments.
- A contingency of five to ten percent held in cash outside the contract. Site costs are the usual source of surprise.
Site costs that blow budgets
| Item | Indicative cost | When you find out |
|---|---|---|
| Asbestos removal | $5,000 to $25,000 | Pre-demolition survey |
| Reactive clay soil, deeper footings | $10,000 to $40,000 | Soil test, before contract if ordered early |
| Retaining walls on a sloping block | $15,000 to $60,000 | Detailed survey and design |
| Sewer main under the block | $8,000 to $50,000 | Sydney Water sewer diagram |
| Service disconnections and reconnections | $3,000 to $12,000 | Demolition stage |
| Tree removal and protection orders | $2,000 to $15,000 | Council arborist assessment |
Indicative Sydney ranges at September 2026. Costs vary by block, council and contractor. A sewer diagram and a soil classification report cost a few hundred dollars between them and remove most of this uncertainty before you commit.
The three things that hold drawdowns up
1. The claim sitting in your inbox
By far the most common cause. The builder invoices on a Friday, it is noticed the following Wednesday, and five days are gone before the lender has seen anything. This is why we take progress claims directly for our clients.
2. Variations that were never approved
If you and the builder agreed an upgrade mid-build and the contract sum rose, the lender approved against the original figure. The difference has to be funded, either from your own cash or through a loan increase, and a loan increase means a fresh assessment and often a fresh valuation. Sort variations before the work happens.
3. The inspection disagreeing with the builder
Occasionally the valuer says a stage is incomplete when the builder says it is done. That resolves in a few days, but only if somebody is driving it. We chase those rather than leaving the client between two parties who are not speaking to each other.
The process
How a construction loan runs, start to finish
Realistic durations from the files we settle. A house and land build runs 10 to 14 months from finance approval to handover. A knockdown rebuild runs 12 to 18 months from first drawing.
- 1Day 1, 45 minutes
Discovery call
What you are building, on what land, with which builder, and what your income and equity position looks like. If the plan does not fund, we will say so on the first call rather than after you have paid a designer.
- 2Days 2 to 7
Document gathering and contract review
Plans, contract, specification, insurance and approval documents. We read the contract for the drawdown schedule and the variation clauses before it goes to a lender.
- 3Days 5 to 12
Lender selection and submission
Not every lender handles duplex, dual key or owner builder work the same way. We take it to the ones whose policy fits your build and submit with a written credit summary.
- 4Weeks 2 to 4
As-if-complete valuation
The valuer assesses the finished property from the plans and specification. Detailed inclusions schedules produce better valuations than vague ones.
- 5Weeks 4 to 6
Formal approval and loan documents
Unconditional approval, then documents. We check the approved rate, the drawdown schedule and the fees against what was quoted before you sign.
- 6Weeks 5 to 7
Settlement and first drawdown
Land settles or the existing loan refinances into the construction facility, and the deposit or first stage is released.
- 7Months 2 to 14
Progressive drawdowns
Slab, frame, lock-up, fit-out, completion. We submit every claim the day the builder issues it and chase the inspection where needed. Each draw takes five to ten business days.
- 8At handover
Final drawdown and conversion
Final inspection, occupation certificate, final payment, and the loan converts from interest only during construction to principal and interest.
- 9Every 12 months after
Annual rate review
We diarise the settlement anniversary and review the rate against the market each year. Construction loans often revert to an uncompetitive rate once the build is done.
FAQ
Common questions about construction loans
Answers to the questions we are asked most often. If yours is not here, ask us directly.
Funds are released in stages at build milestones: slab, frame, lock-up, fit-out and completion. The builder issues a progress claim, the lender usually sends a valuer to confirm the stage is complete, then releases that portion of the contract. You only pay interest on what has been drawn.
No. During the build you generally pay interest only on the drawn balance. Full principal and interest repayments begin after the final drawdown at completion. Repayments climb through the build as each stage is drawn.
Five to ten business days from the builder issuing the claim to funds landing, where an inspection is required. The lender instructs a valuer, the report comes back, then payment is authorised. Submitting the claim the day it is issued rather than at the end of the week keeps it at the short end.
A variation has to be funded. If the lender approved against a fixed price contract, an increase means either you pay the difference in cash or you apply to increase the loan, which triggers a fresh assessment and usually a fresh valuation. A contingency of five to ten percent held outside the contract is the simplest protection.
Yes. A knockdown rebuild follows the same progressive drawdown structure. The difference is that the valuation is done on an as-if-complete basis while the existing dwelling is still standing, and demolition sits ahead of the slab stage.
Some do, some do not. Where demolition sits inside the builder fixed price contract it is usually funded with the first drawdown. Where it is a separate contract, many lenders expect it to come from your own funds or from an equity release completed before the construction facility starts. Budget $25,000 to $45,000 for a standard Sydney demolition, more with asbestos.
Most lenders require builder home warranty insurance and a fixed price contract precisely for this. If a builder fails mid-project, the insurance responds and a replacement builder is engaged. We help navigate the conversation with the lender, which usually involves a revised contract and a reassessment of the remaining drawdowns.
Yes, but the lender pool is much smaller and maximum loan to value ratios are lower, commonly 60% to 80% rather than 90%. Lenders want evidence of your experience, an owner builder permit and a detailed costing. We will tell you honestly whether it stacks up before you commit.
A fixed price contract states a total sum, with variations as exceptions. A cost plus contract charges actual costs plus a builder margin, so the final figure is unknown at signing. Lenders strongly prefer fixed price and some will not lend against cost plus at all, because they cannot size the facility.
Yes. Some lenders are cautious about two dwellings on one title and others actively support it. The key questions are whether the site is Torrens subdividable, how the rental income is assessed, and whether the valuation is done as one asset or two. Those answers change which lender suits the deal.
A valuation of what the property will be worth once finished, assessed from the stamped plans, the specification and the fixed price contract. It is how a lender can lend against a house that does not exist yet. A detailed inclusions schedule produces a better as-if-complete figure than a vague one.
Five to ten percent of the build cost, in cash, outside the contract. Site costs are where budgets blow: reactive clay footings, retaining walls, sewer mains, service connections and tree removal. A soil classification report and a sewer diagram before you sign remove most of that uncertainty for a few hundred dollars.
It can, and this is a real risk with house and land in new estates where title registration is delayed. Most approvals expire at 90 days, and a re-approval is assessed against your position at that time rather than the original. We check the approval expiry against the estimated registration date before anyone signs a land contract.
Usually yes, on the drawn balance, though some construction facilities restrict it. More importantly, an offset account against the construction loan is available from some lenders and not others, which matters if you are holding cash for the contingency.
It converts from interest only on the drawn balance to a standard principal and interest loan, usually automatically at the final drawdown. That reverted rate is frequently uncompetitive, which is why we diarise a rate review at the first settlement anniversary.
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