A construction loan does not hand you the money and wish you luck. It releases funds in stages as the build hits milestones, and you pay interest only on what has actually been drawn. That structure protects everyone — and it is why building takes more paperwork and more patience than buying.
How progress payments work
The loan is drawn down in stages that follow the build. Typically something like:
- Deposit — to the builder on signing
- Base or slab — foundation down
- Frame — structure up
- Lock-up — roof, windows and external doors on
- Fixing — internal fit-out
- Completion — final payment at handover
At each stage the builder invoices, the lender usually sends a valuer to confirm the work is actually done, and then releases that payment. You pay interest only on the amount drawn so far, so repayments start small and climb as the build progresses.
After completion the loan converts to a normal principal-and-interest home loan.
What lenders want to see
- A fixed-price building contract with a licensed builder. Cost-plus contracts are much harder to finance because the lender cannot see the end number.
- Council-approved plans and specifications.
- The builder’s insurance and licence details.
- A valuation “on completion” — the valuer assesses what the finished property will be worth, and the lending is based on that.
That last one is where deals fall over. If the on-completion valuation comes in below land plus build cost, the lender lends against the lower figure and you cover the difference in cash.
The costs people forget
The contract price is not what it costs to move in. Budget separately for:
- Rent while you build. Six to twelve months of paying rent and loan interest at the same time. This is the big one.
- Site costs — a sloping block, rock, poor soil or a long service run can add a great deal and often is not in the headline price.
- What the contract excludes — commonly landscaping, fencing, driveway, letterbox, clothesline, blinds, floor coverings and sometimes even the kitchen splashback. Read the exclusions list before you sign, not after.
- Variations. Every change during the build costs more than it would have at design stage.
Where delays come from
Stage valuations take time. Wet weather stops work. Trade and material availability moves. A build running three months over is unremarkable, and every extra month is another month of rent plus interest.
If you are also selling something, do not chain the two together tightly. Build timelines slip in a way settlement dates do not.
Is building worth it?
Often, yes — particularly in states where first home buyer benefits favour new builds, as they do in South Australia. A new home also comes with warranty and no immediate maintenance.
Against that: you wait, you pay rent while you wait, you take on some risk, and the block is usually further out than an established home at the same price. Put both on paper with the rent and the exclusions included, and the comparison usually answers itself.
First home buyer benefits · New versus established in SA · Book a consultation
General information only — it does not take your objectives, financial situation or needs into account, and is not credit assistance or legal advice. Construction loan structures, stage schedules and lender requirements vary. Review any building contract with your solicitor. Easy Loan Finance is a Credit Representative (CRN 568863) of Beagle Finance Pty Ltd, Australian Credit Licence 383640.
