The easiest way to prepare your construction loan

Getting your paperwork and plans in order before you apply

Before you lodge a construction loan application, you need council approval for your build, a fixed price building contract with a registered builder, and a clear progress payment schedule that shows when funds will be drawn. Lenders won't assess your application without these three pieces locked in, and trying to rush any of them usually means starting over.

Most people assume the hard part is finding suitable land or choosing a design. In our experience, the hold-ups happen when someone applies for construction finance before the council plans are stamped or the builder has finalised the contract. A lender needs to see exactly what's being built, how much it costs, and who's doing the work. Without that detail, there's nothing to assess.

Consider a buyer looking to build a custom home near Bega. They found land, engaged a draftsman, and started talking to builders. They came to us ready to apply, but the development application was still with council and the builder had only provided a rough quote. We held off on the formal application for six weeks until council approval came through and the builder issued a fixed price contract. Once those were in hand, the lender turned the application around in under two weeks. Trying to lodge earlier would have wasted time and possibly hurt their chances with that lender.

What lenders look for in a building contract

A fixed price building contract removes most of the uncertainty for a lender. It names the registered builder, lists the full scope of works, and locks in the total cost. The contract should also include a construction draw schedule that breaks the build into stages with a dollar amount tied to each stage. Most draws happen at slab, frame, lock-up, fixing, and completion, though the exact stages vary depending on the builder and the project.

Lenders won't accept cost plus contracts for standard residential builds because there's no cap on the final amount. They also won't approve owner builder finance unless you can show trade qualifications and previous builds. The contract needs to specify that you'll commence building within a set period from the disclosure date, usually six months. If that window expires before settlement, the lender may ask for an updated contract or re-assess the whole application.

Make sure the progress payment schedule in your contract matches what the lender expects. Some builders front-load their payments, asking for 40% at slab. Most lenders will only release around 20% to 25% at that stage, which leaves you covering the gap out of pocket. If the builder's schedule doesn't align with standard banking practice, ask them to adjust it before you sign. Changing it later is harder, and the lender won't bend their draw policy to suit your builder.

Council approval and why it can't be conditional

You need full council approval before a lender will formally assess your construction loan application. A development application that's still pending or approved with unmet conditions won't satisfy the requirement. The lender wants to see that the build is legally permitted and that all planning hurdles are cleared. If there are conditions attached to the approval, such as a requirement for additional reports or design changes, those need to be discharged before you apply.

In areas like Merimbula and Pambula, coastal setback rules and bushfire attack level ratings can add weeks to the approval process. Some blocks also require geotechnical reports or wastewater assessments before council will issue a final stamp. If you're buying a house and land package, check whether the developer has already secured approval for a standard design on your lot. That can save you months compared to a custom design that needs a full DA process.

How construction funding actually gets released

Construction finance works on a progressive drawdown. The lender releases funds in instalments as each stage of the build is completed, based on the progress payment schedule in your contract. Before each release, the lender arranges a progress inspection to confirm the work matches the stage being claimed. Once the inspector signs off, the lender pays the builder directly. You only get charged interest on the amount drawn down so far, not the full loan amount.

Most lenders also charge a progressive drawing fee each time funds are released, usually between $300 and $500 per draw. If your build has five stages, expect to pay that fee five times. Some lenders cap the total fees or bundle them into the loan, but it's worth asking upfront so you're not surprised when the first invoice arrives. During construction, your repayments are interest-only, and the amount you pay increases slightly each time another draw happens.

If the build runs over time or over budget, things get complicated. The lender approved a specific loan amount based on the fixed price contract, so if the builder asks for more money halfway through, you'll need to cover that yourself or apply for a loan top-up. A top-up means another assessment, more paperwork, and possibly a higher interest rate if your circumstances have changed. Lock in your contract amount carefully and include a contingency buffer if you're doing anything custom.

Preparing your deposit and knowing what counts as genuine savings

For a land and construction package, most lenders want at least a 10% deposit, and they prefer to see genuine savings rather than a gift or a one-off bonus. Genuine savings means money that's been in your account for at least three months and built up gradually through regular income. If you're also covering stamp duty, legal fees, and building insurance, factor those into your upfront costs. They don't come out of the loan.

Some lenders treat the land purchase and the construction loan as two separate transactions. You settle on the land first using part of your deposit, then the construction loan starts once the building contract is signed. Other lenders roll it all into one approval but still release funds in stages. Ask your broker how the structure works with the lender you're considering, because it affects how much cash you need available and when.

If you're building in Cooma or the Snowy Monaro, where land prices can be lower but building costs are similar to the coast, your deposit might cover the land entirely and leave some buffer for early construction costs. On the coast, where land prices are higher, you might be stretching your deposit just to settle on the block. Understanding your cash position before you commit to a builder makes the whole process more predictable. We regularly see people sign a building contract before they've worked out how much deposit they'll have left after settling on the land, and that creates stress when the first progress payment is due.

What happens if your build gets delayed

Delays happen. Wet weather, supply shortages, and subcontractor availability can all push a build out by months. If your construction loan approval expires before the build finishes, you may need to reapply or extend the approval. Most construction loan approvals are valid for 12 months, but the actual build might take longer, especially if council inspections or plumber and electrician schedules don't line up.

Interest-only repayments during construction mean your monthly cost is lower than it will be once the loan converts to principal and interest, but if the build drags on, you're paying interest for longer without moving in. Some lenders allow you to make additional payments during construction to reduce the balance early, but not all do. Check the loan terms before you assume you can pay extra.

Once the build is complete and you've got an occupancy certificate, the loan converts to a standard home loan with principal and interest repayments. That's when your monthly payment jumps, sometimes significantly. Make sure you've budgeted for that increase, especially if your household income or expenses have changed since you first applied. If you need help reviewing your loan structure or you're ready to get your construction loan application underway, call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions