A construction loan is generally designed to fund building work in stages rather than advance the full approved amount on day one. The lender, builder, borrower and valuer need a shared view of the project, costs and expected completion.
How construction lending differs
A standard purchase loan is usually assessed against an existing property. Construction lending may consider the land purchase, building contract, plans, specifications, fixed-price inclusions, borrower contribution and the proposed value on completion.
Some borrowers purchase land and build under one coordinated application. Others already own the land and seek construction-only funding. Lender policy, loan-to-value ratio and serviceability treatment can differ between these situations.
Builder and project documents
Commonly requested information can include a signed building contract, builder licence and insurance details, plans, specifications, inclusions, a schedule of payments, council or development approvals and evidence of the land contract. A lender may also require a valuation based on the proposed completed property.
Prepare a realistic budget that includes deposits, site costs, professional fees, lender fees and a contingency. A home loan application checklist can help organise the personal income, asset and liability evidence needed alongside the project documents.
Progress payments and construction stages
Construction loans commonly release funds after an approved stage is complete and inspected. Typical stages may include slab or base, frame, lock-up, fixing and completion, although the names, number of inspections and payment percentages are not identical across lenders or contracts.
The borrower may need to contribute funds before or alongside lender advances. Keep invoices, inspection reports and variations organised so the next drawdown can be reviewed efficiently. Interest may be charged on the amount drawn rather than the full approved limit, depending on the facility.
Variations, delays and final valuation
Changes to finishes, materials or layout can increase the contract price and may need lender approval. Delays can affect rent, temporary accommodation, interest and the expiry of approvals. A contingency does not remove the need to discuss material variations promptly.
Before completion, the lender may require a final inspection, completion evidence and a final valuation. Serviceability should be considered both at application and if costs, debts or income change during the build.
Common mistakes
- Assuming every lender uses the same progress-payment policy.
- Underestimating site works, professional fees or contingency funds.
- Starting variations without confirming how they will be funded.
- Letting an approval or building contract expire without a review.
For related preparation, read the pre-approval guide or home loan deposit guide, then book a consultation.