Construction Loan FAQ Australia

Most mainstream lenders require a minimum 20% deposit for construction loans to avoid lenders mortgage insurance. This deposit covers both the land purchase (if applicable) and the total construction cost combined. Some lenders allow construction lending at 10% deposit (90% LVR), with LMI added to the loan amount. For a house and land package where land is purchased separately, the land loan typically settles first, and the construction component draws down separately once the building contract is signed and the lender confirms approval.

Standard construction loan documents include government-issued ID, payslips or income evidence (or tax returns for self-employed borrowers), a signed fixed price building contract, council-approved plans and specifications, the builder's registration details and certificates of insurance, a council rates notice and current land valuation. The lender will also require the land title or contract of sale if the land has not yet been purchased. Some lenders require a quantity surveyor's report for larger or higher-value builds. Missing or incomplete documents are one of the most common causes of construction loan delays.

Lenders require a fixed price contract because it defines the total construction cost they are lending against. A cost-plus or provisional sum-heavy contract introduces cost uncertainty that makes it difficult for the lender to assess the final loan-to-value ratio with any confidence. Fixed price contracts cap the builder's invoicing to the agreed amount, protecting both the borrower and the lender against unexpected budget overruns. Borrowers should still budget for variations and site-specific costs, such as soil testing, rock removal or service connections, that may not be included in the base contract.

Yes, self-employed borrowers can access construction loans, but income documentation requirements are higher. Most mainstream lenders require the most recent two years of personal and business tax returns and notices of assessment. If income has been variable, lenders may use an averaged figure across both years rather than the most recent figure alone. Low doc construction loans are available for self-employed borrowers who cannot provide full financials, typically requiring a deposit of 30 to 40% and accepting BAS statements or accountant declarations as income evidence.

Yes, low doc construction loans are available for self-employed or ABN-registered borrowers who cannot supply full financial statements. Pricing and maximum LVR are more conservative than full doc: most lenders cap low doc construction lending at 60 to 70% LVR. The requirement for a fixed price building contract and council-approved plans still applies regardless of income documentation pathway. Lender choice narrows significantly under the low doc pathway, which makes identifying the right lender before applying an important step in the process.

No. Property Finance Help is not a lender, broker, credit provider or financial adviser. We provide general information and referral support only and may connect you with a suitable finance contact where appropriate. Any credit decision is made by the lender or broker you are connected with, not by Property Finance Help.

Construction loan pre-approval for a straightforward full-doc application with complete documents typically takes one to two weeks. Final approval requires signed plans and an on-completion valuation of the finished property: the "as if complete" valuation can take 5 to 10 business days on its own. Complex or higher-value builds may involve a quantity surveyor's report, extending the assessment period further. Construction should not begin before formal loan approval is in place, as any work started before approval can complicate the security assessment.

No. During the construction phase, interest is charged only on the amount drawn down to date, not on the full approved loan amount. As each progress payment is released to the builder, the interest-bearing balance increases. This means repayments start low at the beginning of the build and increase with each draw-down. Once construction is complete and the loan converts to a standard mortgage, repayments are calculated on the full loan balance under the agreed principal-and-interest terms.

Fees for a construction loan typically include an application or establishment fee ($0 to $600), a valuation fee for the on-completion valuation ($400 to $600 for standard residential builds, higher for complex or higher-value projects), a monthly or annual package fee where applicable and government mortgage registration fees which vary by state. Some lenders also charge progress payment inspection fees of $150 to $250 per inspection when an independent inspector is required to confirm each building stage before releasing funds. Quantity surveyor fees may also apply for larger projects and are separate from lender fees.

A cost overrun occurs when the actual build cost exceeds the fixed price contract amount. Overruns can arise from variations requested by the borrower, site-specific issues such as contaminated soil, rock, poor drainage or unexpected service connections and changes to building specifications during the project. Lenders do not automatically fund overruns: any increase above the approved loan amount must be funded by the borrower directly. Most building advisers recommend setting aside 5 to 10% of the contract value as a contingency buffer to cover costs not included in the original fixed price.

If the builder requests variations that increase the total cost beyond the original contract, those additional amounts are generally not covered by the approved construction loan. The borrower must fund the difference out of pocket or, if sufficient equity exists, apply to increase the loan limit, which requires a new credit assessment. Variations that significantly increase total cost can also push the LVR above the lender's approved threshold. All variation requests should be documented in writing and formally signed off before the builder proceeds, to protect both the borrower and the construction timeline.

When the builder reaches practical completion, the final progress payment is released and the lender arranges a final property inspection. The loan then converts from the construction interest-only phase to a standard home loan, typically principal-and-interest, though interest-only may be available on request and subject to credit assessment. The occupancy certificate or final certificate of inspection is usually required before the lender processes the final draw-down and converts the loan. Some borrowers use completion as an opportunity to refinance externally and access a more competitive rate. The RBA cash rate page provides context on the rate environment at any point in time.

This depends on the lender and loan product. Most construction loans use a variable rate during the build phase, which typically allows additional repayments without penalty. The main lever for reducing total interest during construction is the draw-down schedule: the less of the approved funds drawn at any given time, the lower the daily interest charge. Once the loan converts to a standard home loan at practical completion, the repayment conditions of that product apply, including any restrictions on extra repayments if a fixed rate is selected at conversion.

Yes. A house and land package typically involves two components funded separately: a standard land loan to settle the land purchase, and a construction loan drawn down in stages once the building contract is signed and approved by the lender. Some lenders offer a single facility covering both components under one approval. For new estates where land settles before construction begins, only land loan interest is charged in the interim period. Construction loan draw-downs begin once the builder breaks ground and the first progress claim is submitted.

An owner builder loan is a construction loan for borrowers who act as their own project manager rather than engaging a registered builder. Fewer lenders offer this product because the risk is higher: without a licensed builder, there is greater uncertainty about build quality, timeline and final cost. Most lenders cap owner builder loans at 60 to 70% LVR, compared to 80 to 90% for registered-builder construction loans. An owner builder permit from the relevant state building authority is required, and some lenders also require the borrower to have prior building experience. ASIC's MoneySmart owner builder guide outlines permit requirements and insurance obligations by state.

Yes, and most borrowers do. Once construction is complete, the construction loan converts either automatically or by formal application to a standard home loan with the existing lender. Borrowers may also choose to refinance externally at this point to access a more competitive rate, better product features or a lender with a more suitable long-term policy, particularly where the borrower's financial position has improved since the original construction loan was approved. For an overview of what the refinancing process involves after completion, see the construction loan refinancing guide on this site.

Yes. A knock down rebuild involves demolishing an existing home and building a new one on the same block. Financing typically combines a loan against the existing property or residual land value with a construction draw-down facility for the new build. Some lenders treat knock down rebuild as a single construction loan, while others assess the demolition and build components separately. The demolition cost must be included in the total project cost plan, and the lender assesses the project on the on-completion value of the finished property rather than the pre-demolition value. Existing mortgage holders should contact their current lender early to understand how a knock down rebuild affects their existing security.