A standard home loan is paid out once at settlement. A construction loan works differently. The loan is approved for the project, but the money is released in stages as the build progresses and lender conditions are met.
A construction loan is a home loan used to fund a new build or major building work.
Instead of the full loan being paid out at settlement, the lender releases approved amounts in stages. These staged payments are often called progress payments or drawdowns.
The drawdowns are linked to the building contract and progress-payment schedule. The lender may also require invoices, inspections, valuations, or other evidence before releasing funds.
Interest is generally charged on the amount already drawn down, not the full approved build limit from day one.
During construction, the lending is often floating and interest-only. Once the home is finished and the lender’s completion conditions are met, the loan can be reviewed and moved into a longer-term home loan structure, such as fixed, floating, or split lending.
The right lending approach depends on the project, the contract, the property, and the payment schedule. A lender that suits one type of build may not suit another, so it is important to check how your project will be assessed before you sign an agreement.
The land purchase and future build may be assessed separately.
The lender may check the section, access, services, zoning, intended house design, expected build timing, and your ability to afford both stages. Some lenders may set conditions around when construction needs to begin.
With a progress-payment build, you settle on the land first, then pay the builder in stages as work is completed.
A fixed-price contract can give the lender more certainty, but allowances, provisional sums, exclusions, and variations can still affect the final cost.
With a turnkey or off-the-plan purchase, you pay a deposit when the agreement is signed, then pay the balance when the finished property settles.
Your lawyer should review the agreement, including the sunset clause, deposit protection, variation terms, and what must be completed before settlement.
For a prefabricated or transportable home, the lender will usually want to understand where the house is being built, when ownership transfers, and when it becomes fixed to the land.
Transport, foundations, service connections, consent requirements, and site works should all be included in the project budget.
A structural renovation or extension may need staged construction lending, similar to a new build.
Smaller work may fit a home loan top-up, refinancing, savings, or an existing revolving credit facility, depending on your equity, income, lender criteria, and the scale of the work.
Your building contract sets out when each progress payment is due.
Common stages may include deposit, foundations, framing, enclosed shell, interior work, and practical completion. The wording, timing, and amounts can vary between builders and contracts.
At each stage:
The lender approves finance and releases funds based on its lending conditions. It does not certify workmanship or replace legal, building, or contract advice.
If there is a dispute about a payment claim, your lawyer, building adviser, or another appropriate specialist should be involved.
Some contracts also hold back a final amount until certain work is finished or defects are addressed. That is different from a lender holding the final drawdown until it receives completion documents, a final inspection, valuation, or Code Compliance Certificate where required.
Call Sarah on 022 305 5696 or send your details through before you sign. We can help map the payment schedule against the likely loan structure, lender requirements, and drawdown process.
There is no single deposit amount that applies to every build.
Some lenders may consider qualifying owner-occupied new builds with a lower deposit, particularly where there is a suitable fixed-price contract and a completed, ready-to-live-in property at the end of the build.
Other projects may need more equity. This can include bare land, labour-only builds, owner-managed projects, multiple contractors, unusual properties, or projects with higher cost uncertainty.
Reserve Bank LVR restrictions generally do not apply to construction loans or newly built homes bought from the developer within six months of completion. However, that does not mean every lender must approve a low-deposit construction loan.
Lenders still apply their own deposit, servicing, contract, valuation, property, and approval criteria. Low-equity costs may also apply.
Qualifying new-build construction is also treated differently under Reserve Bank DTI restrictions. However, that exemption does not generally apply to ordinary top-ups for extensions or renovations to an existing home.
We help check how your project may fit lender policy before you commit to the land, contract, or build structure.
The lender assesses the whole project, even though the money may be released in stages.
It will usually look at your deposit or equity, income, existing debt, regular spending, and the cost of living somewhere during the build.
The lender may also consider both the total land-and-build cost and an “as-if-complete” registered valuation.
If the completed valuation comes in below the full project cost, you may need to contribute more cash, reduce the scope, or look at another option.
The lender will also test whether you can afford the completed mortgage, not just the smaller payments at the start of construction.
Use our borrowing power calculator as a starting point. We can then review the full project against lender policy.
A construction loan usually needs more documentation than a standard home purchase.
A lender may ask for:
Approval may be conditional while final contracts, consents, valuations, or insurance details are being completed.
Do not rely on an informal indication alone before signing an unconditional land or building contract. Make sure you understand what formal lender approval, legal review, and contract conditions are needed first.
A fixed-price contract heading does not always mean every cost is fixed.
A prime cost sum is an allowance for an item that may not have been selected yet, such as tapware, tiles, appliances, or fittings.
A provisional sum is an allowance for work that cannot yet be priced accurately, such as earthworks, foundations, drainage, or other site-related costs.
Exclusions are items not included in the contract price. These may include landscaping, driveways, retaining walls, curtains, utility connections, professional fees, or council costs.
These items can affect the total amount you need to contribute and the way the lender assesses the project.
We help put the known costs into one project budget before approaching a lender. Your lawyer and builder remain responsible for confirming what the contract legally includes.
There is no single contingency amount that suits every project.
The right buffer depends on the contract, site conditions, level of design detail, fixed or unfixed costs, and how much cost uncertainty remains.
Your contingency may need to cover:
Some lenders may require contingency to be included in the approved budget. Others may want evidence that the contingency is available in cash or equity.
Some lenders may also require a fully fixed-price contract before approving the loan.
We help you understand what the lender may require and whether the project budget has enough room before the loan is submitted.
During construction, interest is generally charged on the amount already advanced.
For example, if your approved project includes a $300,000 land loan and a $500,000 build facility, you are not charged interest on the full $800,000 from day one.
The drawn balance may increase like this:
Payments increase as more money is drawn down.
The land portion starts costing interest from land settlement. You may also be paying rent or another mortgage during the build, so overlapping housing costs should be included in the budget.
Construction facilities are commonly floating and interest-only while the work is underway. Some lenders may allow drawn portions to be fixed during construction.
Once construction is finished and the lender’s completion conditions are met, the full mortgage can be reviewed and moved into the repayment structure chosen for the completed home.
You may be able to use a home loan top-up for renovations if you have enough equity, income, and lender approval.
A top-up adds new borrowing against your current home. It may sit as a separate loan split or be combined with existing lending.
For smaller renovation work, a top-up may be simpler than a full construction facility. The lender may still ask for quotes, a clear use of funds, and updated affordability information.
Major structural work, consented extensions, or full-house rebuilds may need staged drawdowns. In those cases, the lender may ask for plans, consent, a building contract, contract works insurance, and valuations before and after the work.
Other options may include refinancing to another lender, using an existing revolving credit facility, or applying for a lender’s renovation or energy-efficiency loan where the work qualifies.
The loan term matters too.
Spreading renovation borrowing across the remaining mortgage term may lower the regular repayment, but it can increase the total interest paid over time unless there is a faster repayment plan.
Call Sarah on 022 305 5696 or send your details through. We can compare a top-up, refinance, or construction facility against the type of work you have planned.
The final drawdown usually depends on the lender’s completion conditions.
For consented work, the council may issue a Code Compliance Certificate when it is satisfied the completed work complies with the building consent and Building Code requirements.
The lender may also require a final inspection, valuation, updated insurance confirmation, or other documents before releasing the final drawdown.
Before final payment, it is worth checking:
Once the build is complete, we can help review the completed mortgage structure. This may include how much to fix, how much flexibility to keep, and how quickly you want the principal to reduce.
Construction finance may not suit every project. It is better to identify any mismatch before the contract is signed, rather than halfway through the build.
A progress-payment construction loan may be harder to arrange if:
Owner-managed and labour-only builds can be harder to fund because cost and completion risk may be less certain. Some lenders may require more equity, a quantity surveyor, proven building experience, or additional oversight.
Finance approval is not a warranty that the builder, contract, or project is risk-free.
The lender assesses the loan. Your lawyer, builder, insurer, and other specialists remain important for checking the contract, build quality, insurance, and project risk.
Construction and renovation finance can involve more moving parts than a standard home loan. Sarah helps you understand the project budget, lender requirements, drawdown process, and long-term loan structure before the application is submitted.
Plan My Construction FinanceWe help list the land, contract price, outside work, fees, insurance, overlapping housing costs, and contingency. This gives the lender a clearer picture of the full project cost.
We review the price type, drawdown schedule, provisional sums, exclusions, and expected completion timing from a lending perspective. Your lawyer checks the legal terms of the contract.
We compare construction and renovation lending options across banks and non-bank lenders. The right fit can depend on deposit, income, contract type, project risk, property type, and servicing.
Where land and construction settle separately, we help prepare the lending application so both parts are considered together. This helps clarify what needs to happen before land settlement, before the build starts, and before each progress payment.
We help manage the lender's drawdown requirements and communication. You stay responsible for checking and authorising builder invoices before payment is requested.
When the work is finished and the lender's completion conditions are met, we help review the completed mortgage structure. This includes repayment type, fixed or floating portions, loan splits, and future refix dates.
Sarah is super helpful and easy to work with, she actively communicated and answered all of my silly questions quickly. Highly recommend her for first home buyers and buyers in general. Great to work with and very informed!
Sarah was absolutely amazing in guiding us through the process as first home buyers. She truly went above and beyond, taking the time to answer all of our (sometimes silly!) questions and making sure we felt supported every step of the way. She was always available to help, even on weekends, whether by call or text, which made such a stressful process feel so much easier. We would highly recommend Sarah and couldn’t have asked for a better experience.
Sarah been amazing to deal with! She has helped my partner and I get into our first home. She answered all our thousands of questions! Which really helped us understand the process :) (thanks Sarah!!)
I had the pleasure of working with Sarah as my mortgage advisor for purchasing my first home, and I couldn’t be more grateful for her support throughout the process. From the very beginning, she was extremely helpful and transparent, explaining every detail in a way that made everything clear and easy to understand. I thought it would be a stressful and overwhelming experience but it was smooth and straightforward thanks to her guidance. She made the whole journey feel effortless. I would highly recommend Sarah to anyone looking for a reliable and supportive mortgage advisor.
Sarah has gone above and beyond for us and has been an amazing support while we were buying our first home! She was always available to answer any of our weird and wonderful questions and was super knowledgeable about all aspects of the process. We cannot thank her or recommend her enough! Thanks Sarah :-)
Sarah was awesome to deal with and helped us get into our first home :) She was super flexible with meeting times and uses google meets so that we could take the meeting from anywhere. Sarah is super friendly and no question was a dumb question for her, which made us feel really comfortable. She explained each step of the process really clearly and helped us apply for a home loan with the banks, fix our home loan and will be following us up when its time to re-fix. 10/10!
Your Questions Answered
Have more questions?
Plan My Construction FinanceA standard home loan is usually paid out as one amount at settlement.
A construction loan is usually approved for the project but released in stages as work is completed and lender conditions are met.
During construction, interest is generally charged on the amount already advanced, not the full approved facility from day one.
Potentially, depending on the lender, property, contract, and your overall application.
Some lenders may consider a 10% deposit for a qualifying owner-occupied new build under a suitable fixed-price contract.
Construction lending is generally exempt from Reserve Bank LVR restrictions, but each lender still applies its own deposit, affordability, valuation, property, and contract requirements.
Yes, it may be possible to finance the land before choosing a builder.
However, lender policy may include conditions around the section, services, zoning, intended build, and when construction must begin.
Before making the land purchase unconditional, it is worth checking the land-only position and the likely build budget.
Construction loan drawdowns happen in stages.
The builder invoices when a contractual stage is completed. You review and approve the invoice, then a drawdown request is sent to the lender.
The lender may ask for an inspection, valuation, or other evidence before releasing funds.
No.
During the build, interest is generally charged on the amount already advanced, including any land lending.
As more progress payments are made, the loan balance increases and the interest cost rises.
Construction lending is commonly floating during the build because new drawdowns are being added over time.
Some lenders may allow drawn portions to be fixed during construction. Once the build is complete, the loan can be reviewed and moved into fixed, floating, or split lending.
The available options depend on the lender and loan structure.
It depends on the size of the overrun, your available funds, and the lender's criteria.
You may need to use contingency, contribute more cash, reduce unfinished work, or ask the lender to reassess the loan.
Extra lending is not guaranteed, so it is important to raise variations or cost overruns early, before the next invoice is due.
A turnkey build usually involves paying a deposit upfront, then paying the balance when the completed property settles.
The developer generally carries the construction funding during the build.
A progress-payment build is different. Your lender releases funds at agreed stages as the builder completes work, so your interest-bearing loan balance grows during construction.
Often, but it depends on the lender, the contract, and the type of work.
For consented work, lenders commonly require a Code Compliance Certificate, final inspection, final valuation, or a combination of these before releasing the final drawdown.
The exact requirement should be confirmed in your loan approval and building contract.
Yes, a top-up may be possible if your equity, income, and overall application meet the lender's criteria.
Smaller renovation work may be funded without progress payments, although the lender may still ask for quotes or a clear use of funds.
Larger consented renovations, structural work, or extensions may need a construction-style facility instead.
Usually, yes, for a new build or major renovation.
Lenders commonly require contract works insurance before construction funds are released.
The policy should match the project, existing structures, contract, and lender requirements. Your insurer should confirm what cover is appropriate.
There is no adviser fee payable by you for our mortgage advice service.
If your loan settles, we are paid by the lender you choose. This does not get added to your loan as a separate adviser fee.
How we are paid, including any lender commissions, is explained clearly in our Disclosure Statement.
In most cases our advice costs you nothing. We're paid by the lender you choose. In a small number of situations a fee applies, and we'll always tell you before any work starts. We're paid much the same whichever lender you go with, so the recommendation is about the loan, not the commission.
