How Construction Loans Work: Building Your Dream Home Step-by-Step
Christian Stevens, Mortgage Broker
Published January 31, 2025, 2:10 p.m ET
If you’re planning to build a new home or undertake a major renovation, a construction loan works differently to a regular mortgage. It’s designed to release funds in stages, as the build progresses — helping you manage cash flow and lender risk.
Here’s how construction finance works in Australia, and what to know before you break ground.
Share:
🔑 Key Facts
- Construction loans release funds in stages as your build progresses, not as a lump sum.
- They require a building contract, council approvals, and staged invoices from your builder.
- Repayments are interest-only during construction, then switch to standard principal & interest after handover.
- Flint helps you secure and structure your construction finance — with lender choice and support at every step.
What is a Construction Loan?
A construction loan is a specialised home loan that funds your build in stages, not all at once.
Instead of receiving a full lump sum upfront, your lender makes progress payments to your builder across key milestones. You only pay interest on the amount drawn down, not the entire loan.
How Progress Payments Work
Construction loans typically release funds in five stages:
- Slab/Base: Site preparation and foundation poured
- Frame: Framework erected
- Lock-Up: External walls, windows, and doors installed
- Fixing: Internal fixtures like cabinets, plumbing, and electrical
- Completion: Final touches and inspection
Your builder invoices you (and the lender) at each stage, and your lender pays directly to the builder after verifying progress.
Key Differences from Standard Home Loans
| Feature | Construction Loan | Standard Home Loan |
|---|---|---|
|
Funds Released |
In stages |
Lump sum upfront |
|
Interest Charged |
On drawn-down funds only |
On full loan from settlement |
|
Repayment Structure |
Interest-only during build |
P&I or interest-only |
|
Inspections Required |
Yes, at each stage |
No |
Construction loans are typically interest-only during the build, switching to principal and interest once construction is complete.
What You Need to Apply
Essential documents include:
- Fixed-price building contract
- Council-approved plans and permits
- Builder’s insurance and licences
- Your income, asset, and liability details (as with standard loans)
Tips:
- Avoid cost-plus or speculative contracts (lenders prefer fixed-price)
- Allow for contingencies (rain delays, cost overruns)
- Speak with a broker early to get lender pre-approval before committing
📞 Building Soon? Let’s Get Your Finance Right from the Ground Up
Flint’s mortgage brokers:
- Guide you through the entire construction finance process
- Work with builders and lenders to avoid funding delays
- Help you structure your loan for long-term flexibility
Chat with Flint today and let’s lay the foundation for your new home the smart way.
Recommended Articles
Specialist & Complex Loans
Downsizing with Confidence: Financial Tips for Over-50s
Aug 18, 2025
Specialist & Complex Loans
Unlocking Financial Potential for Senior Executives: Leverage...
Aug 18, 2025
Specialist & Complex Loans
The Essential Guide to Deposit Bonds: What Homebuyers and...
Aug 18, 2025
Monthly Newsletter
Subscribe and be the first to know about what’s happening in the market.
Contact Us Today
Learn more about how we can help you achieve your financial goals.
Don’t worry, there’s no commitment. Strategic guidance guaranteed.