Your Guide to
Building a Home
Building a home is exciting, but it can also be complex.
Use this guide to understand the construction process, manage extra costs, and calculate your progress payments.
The Construction Finance Process
Financing a build is completely different from buying an established home. The key difference is that you only pay interest on the loan amount that has actually been drawn down to pay the builder.
1. Fixed-Price Contract & Deposit
To secure formal loan approval, lenders require a signed fixed-price building contract and approved council plans. You will usually need to pay an initial deposit (often around 5%) to the builder from your own funds before the bank gets involved.
2. Formal Approval & "As If Complete" Valuation
The bank will value your land plus the proposed build (known as an "as if complete" valuation) based on your contract. If the numbers stack up, they will issue formal approval for the construction loan.
3. The Drawdown Process
Unlike a regular home loan where the seller gets a lump sum, a construction loan is drawn down gradually. The builder completes a block of work (a "stage"), and issues an invoice. You authorize it, and the bank pays the builder directly from your loan account.
4. Progress Inspections
Before releasing funds for major invoices, the bank may send a valuer to inspect the site. This protects both you and the bank by ensuring the invoiced work has actually been completed to a satisfactory standard before the builder is paid.
5. Final Handover & Transition
Before the final payment is made to the builder, the bank requires a final inspection and an occupancy certificate. Once the builder is paid in full, you get the keys! Your loan will then typically convert from an interest-only construction loan to a standard principal and interest home loan.
Common Extra Costs
A "fixed price" contract rarely means that's all you will spend. Be prepared for these common additional costs that can catch first-time builders off guard.
Site Costs
Preparing the land for building. This includes levelling, soil tests, retaining walls, and rock removal. These can vary wildly depending on the block.
Variations
Changes made after the contract is signed. Builders often charge an administration fee plus the cost of the change. It pays to finalize everything before signing.
Landscaping & Driveways
Many standard building contracts do not include driveways, paths, fencing, or garden landscaping. You may need to budget for these separately.
Upgrades & Inclusions
Display homes showcase top-tier inclusions. Upgrading from standard tiles, carpets, appliances, or tapware to premium options will add to your costs.
Rent & Holding Costs
Remember you still have to pay rent where you currently live, plus the increasing interest repayments on your construction loan as the build progresses.
Window Coverings
Blinds, curtains, and shutters are frequently excluded from standard builder contracts.
Progress Payment Calculator
Calculate your construction stages, track when your cash runs out, and see exactly when your interest-only loan repayments kick in.
1. Loan & Cost Details
2. Builder Contract Stages
Adjust the percentages to match your specific building contract.
| Stage Name | % | Invoice |
|---|---|---|
| Deposit (Paid upfront) | % | $20,000 |
| Base / Slab | % | $60,000 |
| Frame | % | $80,000 |
| Lock-up | % | $80,000 |
| Fixing | % | $120,000 |
| Practical Completion | % | $40,000 |
| Total | 100% | $400,000 |
3. Drawdown Schedule
See exactly when your cash runs out and the loan kicks in.
Deposit (Paid upfront)
$20,000Base / Slab
$60,000Frame
$80,000Lock-up
$80,000Fixing
$120,000Practical Completion
$40,000What happens next?
Once construction is finished and the loan is fully drawn to $320,000, the interest-only period typically ends. Your loan will convert to a standard Principal & Interest (P&I) repayment over the remaining loan term.
* Disclaimer: This calculator provides an estimate only. Post-construction repayment assumes the final loan amount is amortized over a 30-year term and does not include land loans, existing debts, or lender fees.
Tips for First Time Builders
If you've never built before, the process can be daunting. Here are some of the best tips to keep your project on track and avoid common traps.
Check your eligibility for Government Grants. Building a new home often qualifies you for the First Home Owner Grant (FHOG) and stamp duty concessions, which can save you tens of thousands.
Double check what is actually included. "Turn-key" doesn't always mean everything is included (e.g. landscaping, driveways, fencing, letterboxes).
Secure formal pre-approval before paying a non-refundable deposit to a builder.
Factor in a buffer of at least 10-15% for unexpected variations, upgrades, and holding costs while you rent during construction.
Review the builder's timeline and check for liquidated damages clauses if they run late.
Engage an independent building inspector for stage inspections. It costs a bit extra but brings peace of mind that the bank isn't paying for sub-standard work.
Keep all communication with your builder in writing.
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