Is a Construction Loan right for you?

You may consider using a Construction Loan if you want to:

  • build a home on land you already own
  • buy vacant land and build a home on it
  • do major renovations to a property you already own.

With a Construction Loan, instead of lending you the whole amount upfront, we make a series of progress payments to your builder as they reach certain stages in the building process.

While they’re building, you only pay the interest on the loan; once the building is finished you start paying principal and interest, unless you arrange to stay on interest only.

Is a Construction Loan right for you?

You may consider using a Construction Loan if you want to:

  • build a home on land you already own
  • buy vacant land and build a home on it
  • do major renovations to a property you already own.

With a Construction Loan, instead of lending you the whole amount upfront, we make a series of progress payments to your builder as they reach certain stages in the building process.

While they’re building, you only pay the interest on the loan; once the building is finished you start paying principal and interest, unless you arrange to stay on interest only.

What is a Construction Loan?

A construction loan is basically a home loan with the flexibility to make progress payments as the builder completes each building stage.

Instead of lending you the whole amount upfront, we pay the money directly to your builder as they complete each stage of the construction process.                                                     

Because we’re in charge of paying the builder, we can do inspections and ensure that they’ve done the work. 

How do I prepare for a Construction Loan?

There are a few things you need to do before you ask us about a Construction Loan.

Organise your builder

  • find a reputable, licensed builder
  • sign a fixed-price contract with them, showing the total cost and the conditions for the construction
  • agree on a schedule of progress payments with them.

This payment schedule must follow the laws of your State or Territory, and the standard contract terms that the Housing Industry Association or Master Builders Association issue.

Get approvals

For many construction or renovation projects, you need your local council to approve your plans and building specifications. Ask your local council about what documents you need from them to show that you have all the necessary approvals.

Family using a construction loan to build a home

Download our Guide to Residential Construction Loans for more tips

Our free Construction Loan Guide takes you through the process of building a  home and applying for a construction loan. It gives you:

  • an overview of the stages of construction
  • information on the roles of the builder, the bank, the council and you
  • a series of simple steps to follow to get your home built
  • checklists to help you get everything ready for each stage of your project.

We’re here to help you build the home you want, and there’s a lot more to it than just lending you the money.

Download Guide Find out more

What you'll need for your application

Applying for the loan is easy. Here are some of the documents we will need from you:

  • the fixed-price builder’s contract (signed and dated)
  • any council-approved plans and building specifications 
  • quotes for any work that’s not included in the builder’s contract (e.g. landscaping)
  • the builder’s registration documents
  • their Builder’s Insurance certificate.

It’s okay if you don’t have all of this information yet. We can talk to you about a pre-approval while you arrange these documents with your builder. 

After your Construction Loan has been approved

Getting valuations

We’ll organise one of our valuers to do two valuations: the first when you apply and the second when the construction is finished. We’ll let know if we need to do any other valuations during the build. 

Step one, build

1. Start building

Once we agree to the loan, the builder has to start building within six months of the date of offer as set out in your schedule, and finish within 12 months from the date of your first progress payment.

Step two, building stages

2. Paying the builder

A builder usually requests payments as the construction progresses. The first payment is usually the deposit you paid when you signed the builder’s contract.

We pay the remaining amounts over five progress payments at each building stage:

  1. Slab stage
  2. Frame stage
  3. Lock-up stage
  4. Fit-out stage
  5. Completed/Final Stage.

As the builder completes each stage, they’ll request a progress payment. If you’re contributing your own money to the construction, your money will be used first, before using the loan.

Note: If you’re eligible for the First Home Owner's Grant, the government will only pay this to you after we make the first payment to the builder at the Slab stage.

Step three, building payments

3. Requesting progress payments

We’ll make the progress payments to the builder on your behalf. To enable these payments, at each stage you need to give us:

  • a Progress Payment Authority to tell us the work’s done and authorising us to make the payment
  • the builder’s invoice
  • receipts for any payments you’ve made directly to the builder
  • details of any variations you’ve made to the building contract.

When we receive these documents from you at each stage, we’ll pay the builder, although in some cases we may need to arrange a valuation first.

We typically pay the builder within five working days during the construction stages.

Step four, finish the build

4. Final stage

At the Final stage you’ll have to give us some other details, including:

  • a Certificate of Completion from the builder
  • a Certificate of Compliance or Occupancy for the completed works
  • a Building Insurance Certificate of Currency for the full replacement and reinstatement value, with us noted as the interested party.

We typically pay the builder within 10 working days of the Final stage to allow time to do a valuation.

Construction Loan FAQs

  • Can I apply if I'm a First Home Owner?

    Yes. If you’re eligible for the First Home Owner Grant (FHOG), you’ll need to lodge that application separately when you apply for the loan.

  • How do I apply for the First Home Owner's Grant and the Construction Loan?

    The First Home Owner Grant (FHOG) is a one-off Federal government payment designed to help first home buyers to buy a property. You can either apply for the grant yourself, or ask us to do it on your behalf.

    Either way, the grant money doesn’t become available until you give us a progress payment request for the Slab stage.

    The amount of the grant and the eligibility criteria are different in each State and Territory, but in most places it’s available to first-time property owners who are either buying an existing home that’s never been lived in, or building an entirely new home.

    Some Australian States and Territories also offer eligible first-time home owners exemptions from stamp duty, or reduced stamp duty rates (sometimes called transfer duty).

    For most construction loans, the government only pays the First Home Owner grant after you’ve laid the slab, when your first loan repayment is due. For this reason it’s best not to include FHOG grants in your deposit for land or construction calculations. If you want more information, go to your State Government’s FHOG website.

  • How much can I borrow for my Construction Loan?

    This depends on various factors, such as whether you’re just buying land now and planning to build on it later, or whether you want to use the loan to buy land, build and live in it, or rent it out.

    Depending on how much of your own money you’re contributing, you may also need to take out lender’s mortgage insurance. We can arrange this. Speak to our friendly Customer Contact team in a branch or call us on 1300 55 72 72 and we'll be happy to help.

  • What repayments do I make while the house is under construction?

    While you’re building, you make interest only payments (not principal and interest), and you only pay interest on the amounts we’ve paid to the builder.

    Once we make the last payment to the builder, your loan changes to the repayments shown in your original loan application. Unless you’ve made other arrangements with us, this usually means you start paying principal and interest.

    You can also ask to fix the interest on all or part of your loan if you want some certainty around repayments. 

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