Skip to Main Content

Making construction loans easier

Constructing a home can be a big project. It does provide you with the freedom to be creative and allows you to design a home that meets your needs and lifestyle. Due to the complexities of construction – building a new home or renovating an existing place, a robust plan and a flexible home loan are vital.

Your builder will require payment at key stages of your build. Instead of drawing down the whole loan amount upfront, we’ll progressively draw down the loan (called progress payments) to pay your builder. Having a construction loan means you only pay interest on the funds you’ve used.

You have the option to request interest only or principal and interest repayments on your loan. With an interest only loan, your repayments will be reduced as they only cover the interest on the loan for the period you request up to a maximum of 5 years (depending on reason of your request). During the interest only period, you don’t pay any amount off the principal, so your loan balance doesn’t reduce as you construct your home. You can find more information in our Interest Only Loans Product Schedule here.

Skip to:

Items to consider when building your home

Choosing a builder

The Housing Industry Association (HIA) or the Master Builders Australia (MBA) can provide a list of their members that may assist you in selecting a builder.

Take your time, talk to friends and family who have already built, as your choice of builder can have an impact on your overall building experience. Visit display homes, check each builder’s quality of work, reputation and service. It is essential that the builder is licensed and accredited. You can use state government websites (e.g. Service NSW) to check the validity of the builder’s license details online.

We require you to enter into a fixed priced contract with the builder and not a cost-plus contract. A fixed priced contract is where the builder agrees to complete the work for a fixed price. Whereas a cost-plus contract is where the builder is paid for the actual work plus a fee, making the final cost difficult to predict.

Budget

Your chosen builder will be able to assist with the costs to finish your home but remember there may be other costs associated with building. You should consider costs relating to variations or any items not covered by the building contract such as landscaping, appliances, window furnishings, driveway, fences, and furniture. You may also need to put money aside for demolition, site preparation, council costs and rent while you build.

Other items to consider

Harsh weather and unforeseen circumstances may delay your build, so be prepared for agreed delivery time frames to be extended.

Think about your design and any future plans you may have, such as a growing family, visitors or ageing parents.

Certain regulations imposed by local councils and government may impact your design and landscaping choices which should form part of the Development Application (DA) process.

You will need to monitor the construction to ensure that the builder delivers on the works that you have agreed to. You might like to seek independent legal advice prior to signing your building contract.

Our construction loan process

To help you start your journey and plan for your new home, it’s a good idea to get an indication of how much you can borrow.

To apply for conditional pre-approval, we will need information and evidence of your income, expenses, assets and liabilities and identification, as well as all building quotes or tenders. 

Approval process 

We can progress your loan application once you have your final:

Fixed priced building contract (can be unsigned at this stage), plus any variations.

Current quotes and payment terms for any major work outside main project build (if applicable).

Site plan.

Building plans and specifications (do not need to be council approved at this stage).

We will arrange an “on completion” valuation by one of our registered valuers to confirm the projected value, based on land and building contract value.

We also require documented evidence of any money you need to contribute towards the cost of the build and subject to you meeting our lending criteria, formal approval is then provided.

Acceptable building contracts

The contract needs to be a fixed priced contract, that provides a progress payment schedule. As a guide, below and next page are the typical progress payment stages and acceptable payment ranges during the construction period. These may change depending on your builder and the complexity of the build.

Stage NSW % of contract price QLD % of contract price
Deposit 10% 5%
Base 15% 20%
Frame 30% 30%
Enclosed 30% 30%
Fixing 10% 10%
Practical completition N/A 5%
Final 5% N/A

Inspections

The property will need to be inspected, once mid-way through construction and once after construction is complete (final inspection), to ensure that the build meets all of the necessary building codes and regulations.

Prior to commencing construction

Once you’ve received your formal loan approval and signed your loan offer, we will request the following from your builder:

Copy of builders’ licence.

Proof of insurance - Home Building Compensation Fund, public liability and ‘all risk’ cover.

Signed building contract plus any building contract variations.

Copy of stamped council approved plans and specifications.

Once the builder has provided all required documents, we will issue an “Authority to Commence Construction” letter to yourself and the builder. Building works must not commence before this letter is issued.

Why choose us for a construction loan?

Option for a competitive fixed (land only) or variable (construction and/or land) interest rate – you can split the loan.
Loan offset available.
Option for an everyday account with no transaction fees.
Select from a no ongoing monthly fee option with our Great Rate Home Loan or an annual fee with our Ultimate Home Loan.
Flexible repayment options, with the ability to make additional repayments without being penalised‡ (variable rate loans only).

Construction and progress payments to your builder

Exciting news, your build is underway! You are required to make a progress payment to your builder. What now?

If you are contributing funds from your own savings, this amount will need to be paid first, prior to us contributing any funds from your loan.

To make a payment from your loan, we will require:

An invoice from your builder.

Confirmation that the work for which the payment is being requested has been completed to your satisfaction and your authorisation to make the payment. (Please allow 3 to 5 business days for payment.)

After each progress payment, we will notify you of your new monthly loan repayment. You only pay interest on the funds you’ve used and the loan repayment amount is based on your outstanding loan balance as you progressively draw down your loan. As you draw down more of your loan, the repayments will increase, and you’ll need to budget for this.

If your situation changes at any time during the build, get in touch with us as soon as you can.

Final progress payment

Your new home is now complete, and you are required to make the final payment to your builder. To make this payment and help to get you into your new home, we require:

Final invoice from the builder.

Signed Owners Progress Payment Authority form.

A copy of your home building insurance policy noting us as an interested party.

We will arrange for an inspection to be completed by our valuer, to confirm that your home is now complete.

Please allow 5 to 7 business days for this to be finalised.

Home and contents insurance

A home building policy must be in place prior to the final progress payment being made. Having the right insurance gives you the peace of mind that your home and contents are covered in an insured event. We’re able to assist you with arranging Home, Contents or Landlord Insurance.

 

Get a quote Get a quote Home and Contents Insurance

Want to know more?

PDF
Download our guide to construction loans. 2,031kB

Frequently asked questions

Construction loans are home loans for those looking to build a new home or complete major renovations.

Construction loans are drawn down in periodic progress payments as the home is being built or renovated, generally for a period of up to 12 months.

As a guide, there are usually up to five (5) progress payments for a new home at stages including - Slab poured, framework, enclosed structure, fixing/fit out and practical completion (lock up).

During the course of construction, loan repayments are calculated on the advanced portion of the loan amount.

  • A new repayment will be calculated each time loan funds are advanced and you will receive a letter advising of the details.
  • Interest is only charged on the loan amount advanced.

At Greater Bank, our construction loans offer

  • Variable Principal & Interest (P & I)

Fixed Interest rates are not available for construction loans.

View our current home loan interest rates here.

No. We know you’ve got enough on your plate already, so our lenders will do as much of the heavy lifting for you as possible.

We’re able to lend up to 90% (with LMI) of the value of the property (Conditions apply).

Terms, conditions, fees, charges and credit criteria apply.

Yes - absolutely.

Yes, there are some differences between land loans and construction loans.

Construction loans can be used to either build on a piece of land you already own, or to undertake major renovations on your property. The loan is released in progress payments depending on the stage of your build, so there are also specific time frames that your build has to meet. Construction usually has to be completed within 12 months. 

Land loans allow you to purchase a piece of land, and don't require that you build on it straight away. This means you are able to wait for a while before beginning construction on the land. 

There are also differences in the way interest rates are calculated. For example, our land loans have the option of a fixed or variable interest rate, whereas our construction loans only use a variable rate. 

Land and construction loans can be combined, if you wanted to purchase land and immediately build on it. 

No, unfortunately funds can only be released in instalments, or progress payments, for construction or owner builder loans. 

This is to help you keep track of your construction, and ensure you have enough funds for each stage of the build. 

Progress payments are the way funds are released when you take out a construction loan. Instead of receiving your funds all in one go at the start of your build, you receive instalments throughout construction.

Your build is normally divided into five stages, and you receive a progress payment for each stage. Before you receive your next progress payment, we may ask to inspect the property or request more documentation. 

You would be considered an “owner-builder”. Greater Bank do not offer construction loans on this basis. There must always be a registered builder involved, with a fixed priced contract.

This is where the builder has agreed to complete the construction for an agreed fixed price, subject to any contract variations that may be detailed within the building contract.

This is a type of contract where the builder is paid for the actual cost of work completed plus a fee. These types of contracts come with greater risk for the owner, as the final building cost can be difficult to predict. Greater Bank does not approve construction loans for cost-plus contracts.

A fee is not charged for the initial drawdown but is charged for each progress drawdown payment after that. To understand more in relation to the terms and conditions, fees applicable and government charges set out in your loan agreement, please speak to your lending specialist.

Your builder is required to provide a tax invoice with their ABN, that matches the progressive payments outlined in the fixed priced building contract and the account details for payment.

No, a construction loan with progressive payments is not always required. If you wish to complete internal renovations such as a kitchen or bathroom upgrade or new flooring and some painting, you may be able to apply for an increase to your existing home loan.

Please speak to your lending specialist about the right loan for your needs.

No. Any increase or decrease to the current building contract is likely to impact our security value. Where there is an increase in funds required, you will need to cover these changes from your own funds.

If there is a decrease in the contract price, the funds allocated for the items that have now been removed from your loan contract may no longer be available to you. Please speak to your lending specialist to understand your options.

You will need to submit a further application that covers the increase. Your application is subject to our normal lending guidelines and application criteria.

Any overruns must be paid by yourself from your own funds. The drawing down of funds may be suspended until all cost overruns have been met.

Your fixed priced building contract should provide a description of the works to be completed, including plans and specification, the contract price and payment schedule including time frames, along with inclusions and exclusions.

For more information and guidance on building contracts, see the NSW Fair Trading website.

If you are wishing to use the equity in your current property, you should speak to your lending specialist to understand your options and the amount that we can assist with.

If you already have a loan with us this means that we already hold your property as security. You may wish to combine your existing loan with your construction loan, or you can elect to keep your loans separate. If your land loan is with another institution, then it will need to be refinanced to us. Please speak to your lending specialist to understand your options.

You may be able to use the equity in your current land value to assist with this type of construction. Please contact your lending specialist to talk through your next steps.

Any delays in a build may have an impact on your already approved loan. Please ensure that you reach out to your lending specialist to discuss your options.

Home insurance is required prior to the final payment, with us noted as the finance company/bank.

Some builders will include these items as part of the building contract. If these items are not included in your contract, they would be considered as extras. It is important to get quotes for extras if you require funds to complete these works as part of the construction process. You should speak to your lending specialist to understand your options.

You should conduct regular checks on your builders’ workmanship as it is your responsibility to ensure that you are satisfied with the quality of construction prior to you signing and authorising us to make the payments to your builder.

You may want to consider engaging qualified professionals who can assist you by completing these checks on your behalf.

You should first try and resolve any issue with your builder through negotiation or mediation. If you are unable to resolve your dispute with your builder, please seek legal advice.

We will not become involved in the dispute, but you should inform us of any issues.

We can accept deposit amounts for construction loans as low as 10%* (plus costs). 

We're able to lend up to 90% of the value of your property with Lenders Mortgage Insurance (LMI).

  • owner occupied with principal and interest repayment borrowings only

More Home Loan FAQs More Home Loan FAQs

Can't quite find what you're after?

Drop into a branch

Our friendly staff are happy to help with all your banking needs. Find a location near you across NSW and South East QLD.

Find a branch

Can’t make it to a branch?

Our mobile lenders are more than happy to come to you. Find a lending expert close to you and request a callback today.

Find a lender near you

Get in touch

Speak to our contact centre
Monday to Friday 8:00am - 6:00pm AEST.
Saturday 8:00am - 1:00pm AEST.

Call 13 13 86

Terms, conditions, fees, charges and credit criteria apply.

‡Additional costs may apply if your loan has a fixed rate.

~At the end of the fixed rate period customers can chose to re-fix their loan for another fixed rate period or let the loan revert to the applicable variable interest rate based on the loan and repayment type.

Interest Only home loans attract a 0.10% p.a. margin above the applicable Principal and Interest interest rate. Your interest rate which includes any margins, will be set out in your loan contract.