Preparing financially
Financing a home you're building
Construction loans release funds in stages as building progresses — how that changes your repayments and what to check before you sign a building contract.
- Construction loans release funds in stages, typically interest-only until building completes.
- The loan usually converts to standard principal-and-interest once construction finishes.
- A fixed-price contract reduces but doesn't eliminate cost-overrun risk — check what's excluded.
- Budget beyond the headline contract price: site costs, connections, landscaping and a contingency.
How construction loans differ from a standard loan
A construction (or "progressive drawdown") loan releases funds in stages as building work is completed and inspected — commonly roughly aligned to slab, frame, lock-up, fit-out and completion — rather than as one lump sum at settlement. You typically pay interest only on the amount drawn down so far, which increases as construction progresses, then the loan usually converts to a standard principal-and-interest loan once building is complete.
What to check with your builder and lender
Fixed-price building contracts reduce (but don't eliminate) cost-overrun risk; ask specifically what's excluded (site costs, connections, landscaping are common gaps). Your lender will also want a valuation based on the completed build, not the current vacant land — worth understanding before you assume your approved amount is guaranteed once construction starts.
Practical checklist
Before signing a construction loan or building contract
- Confirm the drawdown stages and what triggers each payment
- Ask exactly what's excluded from a fixed-price building contract
- Get a total budget including site costs, connections, landscaping and a contingency
- Confirm how the loan converts once construction completes
Questions for a professional
- What triggers each drawdown, and how is progress verified?
- What happens if the build runs over time or over budget?