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A guide to borrowing to build your home

Building a brand-new home has long been a dream for many of us. To make that dream become a reality however, most of us will have to fund our build with Construction Loan from a bank.


The main difference between a construction loan and any other home loan is that you don’t receive all of the funds at the outset of the project like you would at settlement for an established property. A construction loan is designed to cover the costs of your build as and when you need it, so you only pay for the different construction phases when they actually take place. So if your new home or investment property is going to cost $250,000 to build, you will only receive a percentage of the funds as the various stages of the construction happen.

For the purpose of financing, there are generally six stages involved when building a property. Once a construction loan has been approved and the construction of the property is underway, lenders will make progress payments throughout the stages of construction. Generally, the payments will be made directly to the builder on completion of each stage of the construction. These stages are:

1. Deposit.

This is required at the time that the building contract is signed and is your authority to proceed.

2. Slab, Foundation or Base stage.

This is when site cutting is done as well as initial plumbing. It is when the foundation of the property is completed whether high or lowset.

3. Frame.

The next stage involves the building's frame being erected.

4. Lock Up.

The stage involves works being completed such as all the brickwork, roofing and electrical fittings, which allows the property to be literally “locked up”. So the windows, doors and insulation are fitted and the property becomes physically lockable.

5. Fixing or Fitout.

The next stage is when the interior of the property is installed. So this involves such things as the cupboards, benches and tiling being integrated, plumbing and electrical are completed, and gutters and downpipes installed. The Kitchen is generally fully installed as are bathrooms as well.

6. Practical Completion.

The completion stage is as it sounds and involves finishing the final touches on the property before it’s ready to be certified and handed over to the new owners.

Depending on your circumstances you will generally be required to pay the deposit from your own funds which in most cases is five percent of the build cost. This amount, and the value of each stage thereafter, is spelt out in the building contract.


Like any type of property loan, there are a number of factors involved in obtaining an approval. As mentioned, it’s imperative that you have locked in the costs of construction in a building contract with your builder – who must also be qualified to undertake the project. The bank will be using the value of the building contract and the value of the land you are building on to determine the overall value of the security you are offering to borrow against. So if your land was valued at $220,000.00 and the construction was costing $250,000.00 as set out in the contract, the value of the property would be $470,000.00

As well as the usual documentation for a home loan application, you may also need to supply the following;

  • Building plans and specifications

  • Detailed List of Inclusions

  • Progress payment schedule

  • Fixed price building contract with a licensed builder (signed and dated)

  • Builders risk insurance (or builders public liability insurance)

  • Homeowners’ warranty insurance (if applicable)

These documents are usually part of the building contract or a part of that process.

Don't hesitate to call me on 0402 684 199 If you are thinking of building your new home of investment property and would like more information.

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