Preparing financially
Financing a home you're building
Total project cost vs. lender-assessed value vs. approved loan vs. your cash contribution, drawdown-vs-contract mismatches, and where funding gaps commonly appear.
- Total project cost, the lender's assessed completed value, your approved loan and your own cash contribution are four different numbers — keep them separate.
- A higher building-contract price doesn't automatically lift the lender's valuation, so a shortfall doesn't disappear — you fund it.
- Your building contract's payment schedule and your lender's drawdown schedule don't automatically match — a builder's invoice doesn't itself guarantee lender payment.
- A "fixed-price" contract reduces but doesn't eliminate cost-overrun risk — site costs, provisional sums, PC items and variations commonly sit outside it.
- A lender's progress inspection checks whether a drawdown is justified — it isn't an independent building inspection and doesn't certify the work is defect-free.
Four numbers that aren't the same thing
Before signing anything, keep these separate: your total project cost (contract price plus everything the contract excludes), the lender's assessed completed value (what they think the finished home will be worth — not automatically the same as what it costs to build), your approved loan (based on that valuation, not the contract price), and your own cash contribution to cover any gap. If the lender's completed-value assessment comes in below your total project cost, that gap doesn't disappear — you need to fund it, and a higher building-contract price doesn't automatically lift the valuation.
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, rather than as one lump sum at settlement — the number and names of stages aren't standardised across lenders or contracts, so don't assume a specific sequence applies to yours. 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.
Does your building contract match your lender's drawdown schedule?
These two schedules don't automatically line up. Compare: when the contract requires payment at each stage, when the lender releases funds for the equivalent stage, what evidence the lender needs before it pays (often its own inspection, not just the builder's invoice), and how long that processing takes. A builder's invoice or payment claim doesn't itself guarantee the lender releases funds immediately — a mismatch here can leave you needing to cover a progress payment out of pocket while you wait.
Where funding gaps commonly show up
| Item | Why it can create a gap |
|---|---|
| Valuation shortfall | Lender's assessed value comes in below total project cost |
| Contract deposit | Often payable before any lender drawdown is available |
| Variations | Owner-requested changes after signing, priced and paid separately |
| Provisional sums & PC items | Estimated allowances (e.g. for tiles or fixtures) that can cost more once you actually choose |
| Excluded works | Site costs, connections, landscaping, driveways — commonly not in the headline contract price |
| Delay-related holding costs | Rent, your existing mortgage, and construction-period interest if the build runs long |
What does a "fixed-price" contract actually fix?
It reduces cost-overrun risk, but doesn't necessarily fix everything: site costs (often assessed after signing), provisional sums and PC items, statutory or code changes, owner-requested variations, or work you separately contract yourself. Ask specifically what's excluded rather than assuming "fixed price" means the total is locked in.
What do lender inspections actually check?
A lender's progress inspection exists to decide whether enough work has been completed to justify releasing the next drawdown — it isn't an independent building inspection and doesn't certify the work is free of defects. Consider your own independent inspection at key stages if you want that separate check, rather than relying on the lender's process for that purpose.
Before any of this, check the builder or developer itself — see checking a builder or developer before you sign for how to verify their registration and insurance.
Practical checklist
Before signing a construction loan or building contract
- Compare total project cost against the lender's likely assessed completed value
- Compare the contract's payment stages against the lender's drawdown stages
- Ask exactly what's excluded from a "fixed-price" building contract
- Budget for provisional sums, PC items, site costs, connections and a variations contingency
- Confirm how a valuation shortfall or delay-related holding cost would be funded
Questions for a professional
- What happens if your assessed completed value comes in below the total project cost?
- What triggers each drawdown, and how is progress verified?
- What happens if the build runs over time or over budget?
- Does an independent inspection happen at each stage, or only the lender's own check?