If you're building rather than buying an established home, the finance behind it works quite differently — and that difference catches a lot of first-time builders off guard.
Funds are released in stages, not all at once
Rather than a single lump-sum settlement, a construction loan releases funds progressively — typically at stages like slab, frame, lock-up and completion — matched to a fixed-price building contract.
You generally only pay interest on funds drawn
Most construction loans charge interest only on the amount actually drawn at each stage, rather than the full approved loan amount, which usually keeps repayments lower during the build than they will be once construction is complete.
The builder's contract and progress payments need lender sign-off
Lenders typically require a registered builder, a fixed-price contract, and evidence of progress before releasing each stage payment — an inspection is often required at each stage. Delays in construction can affect the timing of your loan drawdowns.
Chris Brown
Managing Director & Finance Broker at New Vision Financial Services, a credit representative under Australian Credit Licence 384704 and a member of the FBAA and AFCA. More about Chris →
Frequently asked
Do I need a deposit before construction starts?
Yes, similar to a standard purchase — your deposit and any required Lenders Mortgage Insurance are generally factored in before the first stage payment is released.
What happens if the build goes over budget?
You'd typically need to fund the shortfall yourself, or in some cases apply for an increase to the approved loan, which isn't guaranteed and depends on your circumstances at the time.
Can I use a construction loan for renovations?
Some lenders offer construction-style loans for substantial renovations, particularly structural work, though the requirements and stage structure can differ from a full new build.