How do construction loans work in Australia?

Construction loans release funds in stages (progress payments) as the build reaches milestones: base, frame, lockup, fixing, completion. You pay interest-only on the drawn amount during construction.

What deposit do I need for a construction loan?

Most lenders require 10-20% deposit based on the 'end value' (land + construction cost). With a guarantor or government schemes, 5% is possible.

Can I get a construction loan as an owner-builder?

Only a small number of lenders accept owner-builder applications, and they typically cap LVR at 60-70%. You'll need owner-builder permits and detailed plans.

How long does a construction loan take to settle?

Initial approval usually takes 2-4 weeks. Funds are released at each build stage (typically 5 stages over 6-12 months) as the lender's valuer confirms progress.

Can I convert a construction loan to a standard home loan?

Yes — upon completion, your construction loan automatically converts to a standard principal and interest (or interest-only) home loan. You can refinance at this point to secure a better rate.

167,000 New Build Loans Approved in 2025 (ABS)

Build Your Home With Progress Draw Finance

Build costs in Australia now sit at $2,100-2,400/sqm for project homes (Rawlinsons 2026). Average construction loan: $520,000. We compare 105 lenders that offer progress payment loans for new builds, knockdown-rebuilds, and land + construction packages.

See Your Lender Matches → View Build Cost Data

Important Information

Esteb and Co provides credit assistance services. We are licensed credit representatives (ASIC Credit Rep #574070) who help you compare loan options from our panel of lenders. We do not lend money directly. All loan approvals are made by lenders, subject to their criteria and responsible lending assessments. Our service is free to you - we receive commissions from lenders. Read our Credit Guide

📊 ABS + RAWLINSONS DATA — APRIL 2026

The Australian Construction Market

Build costs, approval volumes, and lender data — updated for 2026

DWELLINGS APPROVED (12 MONTHS)

162k

102k houses + 60k units (ABS)

AVG CONSTRUCTION LOAN

$520k

ABS Lending Indicators 2025

PROJECT BUILD COST

$2.2k/sqm

National avg (Rawlinsons)

CONSTRUCTION LENDERS

on our panel

Project Home Build Costs by State ($/sqm)

Standard project home construction — Rawlinsons Construction Cost Guide 2026

Standard project home rates. Premium custom builds: $3,500-5,000/sqm. Architectural: $5,000-8,000/sqm.

Standard Progress Draw Stages

% of contract released at each milestone

Building Approvals (12 months)

Houses vs units approved annually (000s)

Source: ABS Building Approvals 8731.0

Construction loans only charge interest on what you've drawn

A $520k construction loan doesn't charge you interest on $520k from day one. You only pay interest on what's been progressively drawn at each stage — slab, frame, lockup, fixing, completion. That can save you $15,000+ in interest versus a standard mortgage during the build.

See Your Construction Lender Matches →

What is a Construction Loan?

A construction loan provides funds in stages (called progress payments) as your home is built, rather than as a lump sum upfront. You only pay interest on the amount drawn down at each stage.

Construction Loan vs Standard Home Loan

Construction Loan

Funds released in stages
Interest-only during construction
Pay interest on amount drawn
Builder inspections required
6-18 month construction period
Converts to standard loan after

Standard Home Loan

Full amount upfront
Principal + interest from day 1
Pay interest on full loan
No inspections needed
Immediate settlement
Same loan for life of term

Types of Construction Loans

🏗️

Land + Build Package

Purchase land and build a new home in one loan. Most popular option for first home builders.

Deposit: Typically 10-20% of total project cost

🏠

Knockdown Rebuild

Demolish existing home and build new one on your land. Can use existing home equity.

Deposit: Use existing equity, or 20% of build cost

🔨

Owner Builder

Build yourself or manage subcontractors. Higher risk for lenders, stricter criteria.

Deposit: 20-30% typically required

➕

Major Renovation

Significant extensions or renovations. Progress payments as work completes.

Deposit: Use home equity or 10-20% cash

How Construction Loans Work

Get Pre-Approval

Lender approves you for the full construction amount based on your income, deposit, and proposed build.

Sign Building Contract

Choose builder, finalize plans, sign fixed-price building contract. Lender reviews and approves contract.

First Drawdown (Land/Deposit)

First payment released for land purchase or deposit to builder. Construction begins.

Progress Payments (5-6 stages)

Builder requests payment as each stage completes:

Base stage (slab/foundations) - 15%
Frame stage - 20%
Lock-up stage (roof, windows) - 25%
Fixing stage (plumbing, electrical) - 20%
Completion - 15%

Lender sends inspector to verify work before releasing each payment.

Final Completion

Construction complete! Final payment released. Loan converts from interest-only to principal + interest standard home loan.

💡 Key Benefit: Pay Interest Only on Amount Drawn

If your total loan is $500K but only $200K has been drawn down, you only pay interest on $200K during construction (about $1,000/month instead of $2,500/month). This saves thousands during the build period.

Construction Loan Rates & Costs

Current Construction Loan Rates

Variable Rate (During Construction)

6.19% - 6.79% p.a.

Construction rates are typically 0.2-0.5% higher than standard home loan rates due to higher risk and complexity.

Additional Costs to Budget For

Progress inspection fees: $250-$500 per inspection (5-6 inspections)
Building insurance: $800-$2,000 during construction
Council fees & permits: $5,000-$15,000
Connection fees: Water, electricity, gas - $2,000-$5,000
Landscaping & driveways: Often not included in build - $10,000-$30,000
Rent during construction: 6-12 months if you don't own land

Construction Loan Requirements

Deposit Requirements

10-20% deposit minimum (of total land + build cost)
Can include land equity if you already own
Must be genuine savings (3+ months in your account)
First Home Guarantee accepts 5% deposit for new builds

Builder Requirements

Must be licensed and registered builder
Fixed-price contract required (no cost-plus)
Home warranty insurance (required by law)
Plans and permits must be council-approved

Borrower Requirements

Stable employment (6+ months current job)
Good credit history (650+ credit score)
Ability to service interest-only payments during build
Ability to service full P+I payments after completion

Ready to Build Your Dream Home?

Compare construction loan rates from 105 lenders. Get expert advice on land + build packages, knockdown rebuilds, and more.

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Richard (Ricky) Esteb

Licensed Mortgage Broker & Founder

Credit Rep #574071 ACN 681 636 056 83+ Lender Panel

With direct experience helping Australians secure home loans, car finance, and business funding, Ricky founded Esteb and Co to bring transparency and technology to mortgage broking. Every piece of content is written from real-world lending experience.

✓ Verified & Last Reviewed: December 2025 | Content meets ASIC regulatory requirements