Construction loans can help you build your new home.

Learn more about construction loans for new-build homes, before u loan.

What is a construction loan?

A construction loan is a type of financial product tailored for those who plan to build a home. Unlike traditional home loans where you receive a lump sum upfront, construction loans provide funds in stages as your home is being built. This means you'll only pay interest on the amount drawn down, making it a cost-effective choice.

How does a construction loan work in Australia?

  • Pre-approval – Before you start, it's advisable to seek pre-approval for your construction loan. This process involves a lender reviewing your financial situation to determine your borrowing capacity.
  • Progressive drawdowns – As your construction project advances, the lender releases funds in stages, known as progressive drawdowns. These stages usually include land purchase, foundation, frame, lock-up, and completion.
  • Interest-only repayments – During the construction phase, you'll make interest-only repayments, ensuring your loan balance doesn't increase.
  • Transition to standard loan – Once construction is complete, the loan can transition to a standard home loan. Your lender will assess the final value of your property and calculate your repayments accordingly.

The amount you can borrow for your construction loan depends on several factors, including your income, creditworthiness, and the cost of your project. Lenders typically offer a loan-to-valuation ratio (LVR) of up to 95%, which means you may only need a 5% deposit. However, having a larger deposit can be beneficial, as it reduces the amount you need to borrow and can lead to better loan terms.

Yes, construction loans are essentially a form of mortgage designed for those who want to build their dream home. Just like traditional home loans, you'll need to meet certain criteria to qualify, such as having a stable income and a good credit history.

How to find the best construction loan?

Finding the best construction loan can be a breeze if you follow these steps:

  1. Compare lenders – Shop around and compare offerings from different lenders. Each may have different terms, interest rates, and fees, so it's essential to find the best fit for your needs. A broker can help you find the best loan for you.
  2. Understand fees – Pay close attention to any application fees, ongoing fees, and any other costs associated with the loan.
  3. Consider loan features – Look for loan features that align with your construction project's needs, such as a flexible drawdown schedule or interest-only repayments.
  4. Seek professional guidance – Mortgage brokers can be your best friends during this process. They have the expertise to find the most suitable construction loan tailored to your specific situation.
  5. Budget wisely – Develop a comprehensive budget for your construction project. This will not only help you determine how much you need to borrow but also ensure you stay on track throughout the building process.

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