Construction Loans and Banks – 5 Important Things to Know

Aug 26, 2019 | Building Costs

Construction loans aren’t quite the same as regular mortgages used for an existing property but are designed for people wanting to build a new home.

The lender will consider the total amount of finance you will need to pay your builder. The loan is then organised into separate payments called progress draws, which are used to pay the builder as work progresses on the property.  Read on to find out a few tips about how to make your loan application and building phase go a lot smoother.

Do you need to buy a house and land package?

No, you aren’t required to buy a house and land package from a single developer if you have already purchased a vacant block using a regular home loan.

Construction loans are only required when you sign a building contract with a licensed builder. You should be aware that structuring your finance this way will leave you with separate mortgages.


Know your cost of construction

Once you head down the path of building your home, don’t bother walking into the bank to apply for finance without a signed contract. 

Some banks, such as The Commonwealth Bank, allow you to apply for finance with just a tender. However, this could prove to be a rocky road because your costs can change between the tender and the builders finalised contract.

If your final contract price does not align with the tender, then the bank will delay the construction loan process while they revalue the property. We recommend you have a signed contract from your builder before applying for finance to prevent surprises and delays. 


Get an accurate estimate of how long the build will take

Your loan repayments will be interest only during the construction phase. However, you want to minimise the amount of interest you pay as much as possible. A guarantee on when the construction process will be finished will help you keep your project within budget and provide some peace of mind.  


Choose a reputable builder

Some banks will approve a construction loan if you plan on being an owner/builder and you are a qualified tradesperson or are licensed as a builder. Most will prefer you use a licensed builder.

Do your due diligence on finding a reputable builder. Check that they are licensed and up-to-date. Review their previous work and ask for references.

Once you have the references make sure you follow up because some builders will hand them over while relying on the fact that most people won’t bother checking.

Do you need a quantity surveyor?

Quantity surveyors can help with taking a lot of the guess work out of costing your building project. They can also work with builders on your behalf to check in and make sure everything is staying on schedule.

If you want to know exactly what your new home is going to cost you, and would rather not juggle the many tasks it takes to manage the project, then a quantity surveyor is a wise investment.


You may think a quantity surveyor is a needless expense, but good ones like Hai and Brian can use their extensive experience and clout in the building industry to knock thousands of dollars off the cost of your home. Over the term of a loan, the savings you realise at the beginning of your project can add up to tens of thousands of dollars by the time you make your last payment.



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