Do you know what fees apply to construction loans?

Construction finance comes with a different fee structure to a standard home loan, and most of those fees relate to the way funds are released in stages rather than all at once.

If you're building in Alkimos, you're likely looking at a land and build package or a knockdown rebuild, and the fees can add several thousand dollars to your upfront and ongoing costs. Knowing what to expect means you can budget properly from the start and avoid surprises halfway through the build.

Progressive Drawing Fees: The Main Cost Difference

A progressive drawing fee is charged each time your lender releases funds to the builder during the construction phase. Most lenders charge between $150 and $400 per progress payment, and with a typical build requiring five to seven drawdowns, you're looking at around $1,000 to $2,500 in total progressive fees over the course of the build.

Consider someone building a new home in Alkimos on a land and construction package with a registered builder. The builder submits claims at slab, frame, lockup, fixing, and practical completion. If the lender charges $300 per draw, that's $1,500 in progressive fees alone. These fees cover the cost of inspections and administration each time the lender verifies that the stage is complete before releasing the next tranche of funds.

Some lenders cap the number of progress payments they'll allow, particularly if you're using an owner builder arrangement or a cost plus contract. Others charge a flat administration fee upfront instead of per-draw fees. When comparing construction loans, ask whether the lender uses a per-draw model or a fixed fee structure, as this can change your total outlay depending on how many stages your build involves.

Valuation Fees for Land and Proposed Works

You'll pay for at least one valuation when applying for construction finance, and in many cases, you'll pay for two. The first valuation assesses the land on its own. The second assesses the land plus the proposed dwelling based on the plans and the fixed price building contract.

For a house and land package in Alkimos, expect to pay between $250 and $600 for the initial valuation and a similar amount for the progress valuation if your lender requires one. Some lenders bundle these into the loan, but most require payment upfront during the application stage.

If your project involves a custom design or a renovation rather than a standard project home, the valuation cost can be higher because the valuer needs to account for more variables. A knockdown rebuild on an existing block will typically require a valuation of the land with the old dwelling, then a revaluation once demolition is complete and the new build is underway.

Application and Settlement Fees

Construction finance still attracts the same application and settlement fees as a standard home loan, but the settlement process is slightly different. You'll usually settle on the land first, then the construction loan component activates once council approval is in place and the builder is ready to commence building within the set period from the disclosure date.

Application fees vary by lender, ranging from zero to around $600. Settlement fees, which cover the cost of preparing loan documents and registering the mortgage, typically sit between $200 and $800. Some lenders waive these fees as part of a promotional offer, but if you're refinancing an existing property to fund the build, expect to pay discharge fees on the old loan as well.

In Alkimos, where many buyers are purchasing off the plan or entering into a land and build arrangement with a developer, the timing of settlement can affect your holding costs. If there's a delay between land settlement and the start of construction, you'll be paying interest on the land loan while waiting for building to begin, so factor that into your budget alongside the upfront fees.

Interest Costs During Construction

During the build phase, most lenders only charge interest on the amount drawn down, not the full loan amount. You'll make interest-only repayments based on the progressive drawdown balance, which means your repayments increase slightly after each progress payment is released.

As an example, someone building in Alkimos with a construction loan of $500,000 might start with $150,000 drawn down for the land purchase. At current variable rates, interest-only repayments on that amount would be significantly lower than the eventual repayment once the full loan is drawn. As each stage is completed and more funds are released, the interest charge increases incrementally.

This structure keeps your repayments lower during the build, but you need to plan for the step up to principal and interest repayments once construction reaches practical completion and the loan converts to a standard construction to permanent loan. Some borrowers forget to budget for this transition and find themselves stretched once the full loan balance is active.

Legal and Council Fees Outside the Loan

While not charged by the lender, legal fees and council approval costs are part of the overall expense of construction finance and should be included in your budget. You'll pay for conveyancing on the land purchase, and if you're using a custom builder, you may also need to engage a solicitor to review the building contract.

Council plans and development application fees in the City of Wanneroo, which covers Alkimos, vary depending on the complexity of the build, but you should budget at least $1,500 to $3,000 for these costs. If the build involves any variation from standard planning schemes or if you're building close to a boundary, expect those fees to increase.

Some lenders will allow you to capitalise certain fees into the loan, but most require that legal and council costs are paid upfront from your own funds. This is particularly relevant for first home buyers in Alkimos who may be working with a smaller deposit and relying on government grants to cover their upfront contribution. Make sure you have enough genuine savings outside the loan to cover these expenses before committing to a contract.

Comparing Fee Structures Across Lenders

Not all lenders structure construction loan fees the same way, and the variation can be significant. Some lenders charge lower progressive drawing fees but higher application fees. Others offer fixed fee packages that include all progress inspections for a set amount, which can work out better value if your build involves more than five stages.

When we work with clients in Alkimos, we compare lenders not just on interest rates but on the total fee load across the life of the build. A lender offering a rate that's 0.10% lower might still cost you more overall if their progressive drawing fees are $400 per stage instead of $200. Similarly, a lender that caps progress payments at five might not suit a builder who plans for seven stages, meaning you'd either need to negotiate a different payment schedule or absorb the extra cost.

If you're considering refinancing an existing loan to fund a construction project, factor in the discharge costs from your current lender as well as the setup costs with the new one. In some cases, it makes sense to retain your existing loan and set up a separate construction facility, particularly if you're on a low fixed rate that you don't want to break.

Call one of our team or book an appointment at a time that works for you to go through the fee structure on your construction loan and make sure you're set up with a lender that matches the way your builder operates and the timeline of your build.

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