How Do Construction Loans Work?
If you’re planning to build your own home, a construction loan could help finance your project. Unlike standard home loans, construction loans provide funds progressively in stages as your new home is built.
As a mortgage broker in Wollongong and the Illawarra, I often work with clients exploring construction finance. Here’s a practical guide to how these loans work and what you need to know.
A Quick Guide to Construction Loans
Construction loans differ from traditional home loans, which typically provide a lump sum upfront to purchase an existing property. Instead, your lender releases funds in stages, known as “progress payments,” aligning with specific phases of construction.
Common stages of construction include:
Base or slab stage – site preparation, excavation, plumbing, and laying the concrete slab foundations.
Frame stage – building the structural framework, roof trusses, and walls.
Lock-up stage – installing external walls, windows, doors, roofing, guttering, and cladding to secure the home.
Fit-out stage – adding internal fixtures such as plasterboard, cabinetry, plumbing, tiling, and electrical work.
Completion stage – painting, flooring, appliances, landscaping, driveways, and final inspections before occupancy.
(Note: stages may differ depending on your builder. Always refer to your building contract.)
At each stage, your lender will release funds after inspecting the completed work. This ensures the build stays on budget and aligns with the agreed contract.
During construction, these loans are usually interest-only, switching to principal and interest repayments once the build is complete.
Applying for a Construction Loan: What You’ll Need
Applying for a construction loan is similar to a standard home loan in Wollongong, but with extra documentation relating to your build.
Standard loan documents
Identification
Proof of income (e.g. payslips, tax returns)
Details of assets and liabilities
Construction-specific documents
Signed fixed-price building contract
Contract of sale for the land (if applicable)
Post contract variations
Quotes for work to be completed outside of the building contract
Council-approved plans and specifications
Builder’s insurance and permits
During construction
Progress payment invoices from the builder
Every lender has different requirements. Working with a home loan broker Wollongong buyers trust means you’ll know what