Building your own home can be one of the most exciting financial decisions you make.

From choosing the land and designing the floor plan to selecting finishes and watching the property take shape, building gives you the opportunity to create a home suited to your lifestyle.

Financing a new build, however, can work differently from purchasing an established property.

This is where a construction loan may come in.

What Is a Construction Loan?

A construction loan is a type of home loan designed specifically to finance the construction of a new property or, in some cases, significant structural renovations.

Unlike a standard home loan where the lender generally provides the full approved amount at settlement, construction loan funds are commonly released progressively as construction reaches agreed stages.

These payments are often known as progress payments or drawdowns.

How Do Construction Loan Progress Payments Work?

A construction project usually moves through several stages.

Depending on the lender and building contract, these may include:

1. Deposit or Initial Stage

This may cover preliminary works and the initial stage of the building contract.

2. Base or Slab Stage

The property’s foundation, concrete slab and associated groundwork are completed.

3. Frame Stage

The structural frame of the home is constructed.

4. Lock-Up Stage

External walls, roofing, windows and exterior doors are generally installed so the property can be secured.

5. Fit-Out Stage

Internal work progresses, which may include cabinetry, plumbing, electrical work, plastering and other finishes.

6. Completion

The final works are completed before inspection and the final payment.

The exact stages can differ depending on your builder, contract and lender.

Why Are Funds Released in Stages?

Progressive payments provide a structure for financing the construction as it develops rather than advancing all of the money before the property has been built.

Before releasing a progress payment, the lender may require documentation such as an invoice from the builder and may arrange an inspection or valuation.

Your lender’s requirements should be confirmed before construction begins.

What Documents May You Need?

Construction finance often involves more documentation than buying an established home.

Depending on your situation, you may need:

• Signed building contract
• Building plans
• Specifications and inclusions
• Council or relevant approvals
• Builder’s insurance documents
• Land contract
• Quotes for additional works
• Evidence of savings or deposit
• Income documents
• Details of existing liabilities
• Identification documents

Having the correct information ready can help reduce unnecessary delays during the application process.

Your Building Budget Matters

One of the biggest risks when constructing a home is underestimating the true project cost.

Your budget should consider more than the builder’s advertised base price.

Potential additional expenses could include:

• Site costs
• Soil testing
• Site preparation
• Landscaping
• Driveways
• Fencing
• Window coverings
• Upgraded finishes
• Appliances
• Council requirements
• Utility connections
• Changes to the original building contract

Maintaining an appropriate contingency can also help if unexpected expenses arise during construction.

What About Buying Land and Building?

Some borrowers already own their land before applying for construction finance.

Others may need finance for both the land purchase and subsequent construction.

The appropriate loan structure can depend on:

• Land value
• Construction cost
• Available deposit
• Existing equity
• Income and expenses
• Lender requirements
• Timing between land settlement and construction

Planning the finance early can help ensure the land purchase and building contract work together.

What Happens During Construction?

Once your loan is approved and construction starts, your builder generally issues invoices when agreed building stages are completed.

The lender will then assess the request and release the approved payment if its requirements are satisfied.

It is important to follow the lender’s process before making payments directly to your builder.

Avoid Changing Your Finances Mid-Construction

Construction can take months, and your financial situation during that period matters.

Try to be cautious about taking on new financial commitments such as:

• Large car loans
• New personal loans
• Additional credit cards
• Significant buy now, pay later balances

Changes to income, employment or liabilities could affect your financial position.

If something significant changes during the building process, discuss it with your broker or lender.

Why Start the Finance Conversation Early?

One of the best times to investigate construction finance is before signing a building contract.

Understanding your borrowing position earlier can help you establish a more realistic construction budget.

It can also give you time to understand lender requirements before deposits become payable or building deadlines arise.

How Yen Financials Can Help

Construction loans can involve more moving parts than standard home loans.

At Yen Financials, we can help you understand the finance process, assess available lending options and guide you through the different stages involved in funding your new home.

Whether you are:

• Buying land and building
• Building on land you already own
• Planning a knock-down rebuild
• Undertaking a substantial renovation

we can help you explore lending solutions based on your individual circumstances.

Planning to Build?

The right finance structure can make the journey from an empty block of land to your completed home much easier to manage.

Talk to Yen Financials about your construction loan options and start planning your new home with greater financial clarity.

General information only. Loan approval is subject to lender eligibility, valuation, lending criteria, terms and conditions.