Financing for new builds, house-and-land packages, and vacant land purchases. Expert guidance for first home buyers, investors, and owners building their next home.
A construction loan releases funds in progressive stages as your home is built, rather than as a lump sum. You only pay interest on the amount drawn down during construction. Lenders typically use five progress payment stages, slab, frame, lock-up, fit-out, and practical completion, with an inspection required before each drawdown. Once the build is complete, the loan converts to a standard home loan.
Construction loans suit three main groups: first home buyers building new (who can stack the First Home Guarantee, the First Home Owner Grant, and stamp duty concessions on new builds), investors building to maximise depreciation deductions from day one, and buyers purchasing vacant land with the intention to build. Each use case has different lender policies, deposit requirements, and tax implications.
You need a fixed-price building contract from a licensed registered builder, council-approved plans, a deposit typically covering 5-20% of the total project cost, and evidence of your income and financial position. Your lender will also order an "as if complete" valuation of the finished property before approving the loan, this determines your maximum borrowing amount.
5 Stages
Progress Payment Drawdowns
12-18 mo
Typical Build Timeline
Interest-Only
During Construction
Construction loans work differently depending on your situation. Choose your pathway below to understand the specific policies, benefits, and considerations.
Build new and stack the grants.
First home buyers who build can combine multiple federal and state incentives. In Queensland, a qualifying first home buyer building new can access the $30,000 First Home Owner Grant (contracts before 30 June 2026), zero stamp duty on new homes, and the First Home Guarantee, avoiding LMI on a 5% deposit.
The FHOG is typically released at the first progress payment stage rather than at settlement. Your broker applies on your behalf as part of the construction loan process. Eligibility and amounts vary by state.
See our first home buyer schemes guide for the full breakdown by state.
New builds maximise depreciation.
Investors who build new unlock the full depreciation benefit from day one. Division 43 capital works deductions (2.5% of construction cost annually for 40 years) apply to the building itself, and Division 40 plant and equipment depreciation applies in full because you are the original owner, the post-May 2017 restrictions on second-hand plant do not apply.
Interest-only periods are commonly available on investment construction loans, maximising the deductible interest and improving cash flow during the build. Not all lenders offer extended IO periods, lender selection matters.
See our depreciation guide for a full explanation of what you can claim.
Two common financing structures.
If you are purchasing vacant land with the intention to build, you have two main financing paths. A combined land-and-construction loan settles the land purchase and then releases construction drawdowns progressively under one facility. Alternatively, a separate land loan settles the land first, with a construction loan arranged when you are ready to build.
Lender policies on vacant land vary significantly. Unusual blocks, oversized, irregular, steep, in fringe locations, or zoned rural residential, can face restrictive LVR caps or deposit requirements of 30-40%. Standard residential blocks in serviced suburbs are straightforward to finance.
Most vacant land buyers are planning a build within 12-24 months. If that describes you, a combined land-and-construction facility is usually the simpler structure, fewer applications, fewer valuations, one settlement process.
Most Australian construction loans follow a five-stage drawdown schedule. Approximate percentages released at each stage:
Site preparation, excavation, and foundation slab poured. Your lender orders an inspection before releasing the first drawdown to your builder.
Wall frames, roof trusses, and the structural skeleton of the house in place. This stage establishes the footprint and layout of the completed build.
External walls, roofing, windows, and external doors installed. The property is weatherproof and secure, hence the name "lock-up". Internal work can now begin without weather exposure.
Internal fittings, plumbing, electrical, plastering, cabinetry, tiling. The property starts to look finished from the inside, though final surfaces are not yet installed.
Final finishes, flooring, painting, landscaping, and handover. Lenders deliberately hold the final 10-15% in reserve until this stage to ensure your builder is motivated to finish the job properly.
Because drawdowns are progressive, your interest costs build through the construction period. This is called "interest creep", a factor many first-time builders underestimate when budgeting.
Here is how interest accumulates on a $500,000 construction loan at 6.5% interest:
| Stage | Amount Drawn | Monthly Interest |
|---|---|---|
| After slab | $100,000 | $542 |
| After frame | $200,000 | $1,083 |
| After lock-up | $350,000 | $1,896 |
| After fit-out | $450,000 | $2,438 |
| After completion | $500,000 | $2,708 |
You will also continue paying your existing mortgage (if any) throughout the construction period. Budget for peak debt, both your existing mortgage and the fully drawn construction loan, to stress-test whether you can manage the transition period.
If your builder becomes insolvent mid-build, Domestic Building Insurance covers the cost of completing the build up to a state-specific cap. Verify your builder's current insurance before signing the contract.
A fixed-price contract protects you from most variations. Changes you initiate, upgrades to fittings, floor plan changes, are paid by you and require a 5-10% contingency fund.
Delays extend your timeline and increase interest costs. If delays threaten to exceed your lender's maximum construction period, contact your broker early, extensions must be applied for before the deadline.
If the "as if complete" valuation comes in below your total project cost, you may need a larger deposit or reduced build scope. A broker can order a preliminary valuation before you sign the building contract.
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A construction loan releases funds in progressive stages as your home is built, rather than as a lump sum. You only pay interest on the amount drawn down during construction, keeping costs lower during the build. Lenders typically use five progress payment stages: slab, frame, lock-up, fit-out, and practical completion. Once construction is complete, the loan automatically converts to a standard principal-and-interest home loan.
Yes. First home buyers building a new home may be eligible for the First Home Guarantee, allowing a 5% deposit with no Lenders Mortgage Insurance. The combined land and build cost must fall within the scheme's price cap for your area. Queensland first home buyers building new also qualify for the $30,000 First Home Owner Grant on contracts signed before 30 June 2026.
Yes. Investment construction loans work similarly to owner-occupier construction loans, with staged drawdowns during the build. Investors benefit from full Division 43 capital works depreciation (2.5% annually for 40 years) on the new build, plus Division 40 depreciation on plant and equipment, because you are the original owner of the asset, no depreciation restrictions apply.
There are two common structures. A combined land-and-construction loan settles the land purchase and then releases construction drawdowns progressively under one facility. Alternatively, a separate land loan settles the land first, then a construction loan is arranged when you are ready to build. Not all lenders offer both options, a broker familiar with construction lending can identify the right structure for your timeline.
The five standard progress payment stages are: (1) Slab, site preparation and foundation, typically 15-20% of the loan. (2) Frame, wall frames, roof trusses, structural skeleton, ~20%. (3) Lock-up, external walls, roof, windows, doors, 20-35%. (4) Fit-out, plumbing, electrical, plastering, cabinetry, ~20%. (5) Practical completion, flooring, painting, landscaping, 10-15%. Each stage requires a lender inspection before funds are released.
Most lenders require a fixed-price HIA or MBA standard building contract from a licensed registered builder. Cost-plus contracts and open-ended arrangements are generally not accepted because the lender cannot calculate the total loan amount without a defined project cost. Your builder must also hold current Domestic Building Insurance (also called Home Warranty Insurance depending on state).
Before approving a construction loan, your lender orders a valuation of the property as it will exist once finished, based on your approved plans, specifications, and the building contract. The valuer compares the finished property to comparable sales in the area. If the valuation comes in lower than your total project cost, you may need a larger deposit, a reduced build scope, or a different lender. A broker can order a preliminary valuation before you sign the building contract to avoid this issue.
The construction period typically runs 12-18 months. Most lenders allow a maximum construction period of 24 months. If your build runs over time, you may need to apply for an extension, contact your lender as soon as possible if delays are likely. Once the build is complete, the loan converts to a standard home loan for the remaining loan term (typically 25-30 years).
Whether you are a first home buyer, investor, or purchasing vacant land to build, Frontier Finance can identify the right lender and structure for your project.
Construction lending varies more than any other loan type. Lender policies on progress payment frequency, inspection requirements, "as if complete" valuations, and contract types all differ materially. Let Luke Drake at Frontier Finance Co identify the right lender for your project.
General information to help you understand your options. For advice specific to your situation, speak with one of our mortgage brokers.