Construction finance works differently to a standard home loan because lenders advance funds progressively as your build reaches set stages. The preparation work matters because a missing document or unclear cost breakdown can delay your first drawdown by weeks, and that affects builder schedules, supplier orders, and your holding costs on the land.
Lakelands is seeing consistent building activity across new estates and smaller infill blocks, which means local builders and contractors are booking ahead. If your finance isn't structured correctly before you sign the building contract, you risk starting late or missing price holds from suppliers.
What Lenders Actually Want Before They Approve Construction Finance
Lenders need a fixed price building contract from a registered builder, council approval, and a detailed breakdown of costs tied to a progress payment schedule. That breakdown should match the lender's standard drawdown stages, which are typically base stage, frame stage, lock-up, fixing, and practical completion.
In our experience, applications fall over when the building contract uses non-standard payment milestones or when the contract price and the land value don't align with the loan amount. A lender won't approve a construction to permanent loan if your total project cost exceeds their lending limit based on your income and deposit.
Consider a buyer in Lakelands purchasing suitable land for $250,000 and signing a fixed price building contract for $420,000. If they have a 10% deposit across the total project cost of $670,000, they need to borrow $603,000. The lender will assess serviceability on the full loan amount but will only charge interest on the amount drawn down during construction. That buyer needs payslips, tax returns if self-employed, a copy of the development application showing council approval, and the signed building contract with the progress payment schedule attached. If any of those documents are outdated or incomplete, the application stalls.
How the Progress Payment Schedule Connects to Your Drawdowns
Your builder's progress payment schedule dictates when they expect funds, and your lender's progressive drawdown schedule dictates when they release funds. Those two schedules need to line up or you'll be covering gaps out of your own cash.
Most lenders use five standard stages and charge a Progressive Drawing Fee each time they release funds, usually between $150 and $300 per drawdown. Some lenders include a sixth stage for landscaping or final works, but that's less common. Your builder may request payments at different intervals, especially if it's a cost plus contract where you're paying actual costs plus a margin. In that case, you need a lender who offers more flexible progressive payment options, and not all of them do.
If your builder wants 20% upfront before breaking ground, but your lender only releases 10% at base stage, you'll need to fund that difference yourself. That's why the preparation phase involves matching your contract structure to your lender's drawdown terms before you commit to either.
Council Approval and Development Application Timing in Lakelands
You can't settle on a land and construction package without council approval for your build. Some estates in Lakelands have design guidelines managed by the developer, and those guidelines sit on top of the Shire of Murray's planning requirements. You need both approvals before a lender will release the first drawdown.
The development application process typically takes six to twelve weeks depending on the complexity of the design and whether you're building a standard project home or a custom design. If you're buying a house and land package from a developer, the builder usually manages the council plans and lodgement, but you still need to confirm the approval is finalised before settlement. Missing this step means you settle on the land, start paying interest on that portion of the loan, but can't commence building until approval comes through.
Fixed Price Contracts Versus Cost Plus Contracts
A fixed price building contract locks in the total construction cost, and the builder wears any cost overruns unless you request variations. A cost plus contract means you pay the builder's actual costs for materials and labour, plus an agreed margin. Lenders prefer fixed price contracts because the loan amount is predictable.
If you're going with a cost plus contract, you'll need a lender who underwrites based on a detailed cost estimate and allows flexibility in the progress payments. Not all lenders offer that, and the ones that do usually require a larger deposit or charge a higher construction loan interest rate because the risk is greater. Owner builder finance operates on similar principles, but with even tighter criteria because you're managing the build yourself and paying sub-contractors directly.
In a scenario where someone in Lakelands wants to build a custom home using their own registered builder on a cost plus basis, they'd need a full costing breakdown covering materials, labour, plumbers, electricians, and all other trades. The lender would conduct a progress inspection at each stage before releasing funds, and if costs blow out beyond the approved estimate, the borrower needs to cover the difference or renegotiate the loan, which delays the build.
Preparing Your Deposit and Holding Costs
Your deposit needs to cover the land purchase and the gap between the total project cost and your loan amount. Most lenders require at least 10% genuine savings for a construction loan, though some accept gifted deposits or equity from an existing property if you're not a first home buyer.
Holding costs during construction include interest on the land portion of the loan, council rates, and any insurance required before practical completion. Because construction loans only charge interest on the amount drawn down, your repayments increase progressively as each stage completes. Many lenders offer interest-only repayment options during the construction phase, switching to principal and interest once the build is finished and the loan converts to a standard home loan.
If you're using a land and build loan structure, you'll settle on the land first, then start construction once council approval is in place. That means you'll be paying interest on the land from settlement day, even if the build doesn't start for another two months. Planning that gap and having enough cash flow to cover it is part of the preparation work.
What Happens If Your Build Runs Over Time or Budget
Most construction finance approvals require you to commence building within a set period from the Disclosure Date, usually six months. If you don't start on time, the lender can withdraw the approval or ask you to reapply, which means reassessing your income, deposit, and the property value.
If your build runs over budget because of variations or unforeseen costs, you'll need to fund the shortfall yourself unless you can increase the loan amount. Increasing the loan mid-construction requires a revaluation and a new serviceability assessment, and if property values have dropped or your income has changed, the lender may refuse. That's why getting the cost estimate right during the preparation phase matters.
We regularly see builds delayed because the buyer didn't budget for site costs like retaining walls, upgraded electrical work, or changes to the slab design after the soil test. Those costs aren't always visible in the initial building contract, so having a buffer in your budget or a contingency amount approved as part of the loan structure keeps the build moving.
Choosing Between Construction Finance and Refinancing Later
Some buyers consider using a personal loan or redrawing from an existing home loan to fund construction, then refinancing into a standard mortgage once the build is complete. That approach avoids Progressive Drawing Fees and gives you more control over payment timing, but it requires significant cash reserves and doesn't suit most buyers.
Construction finance from a mortgage broker who can access Construction Loan options from banks and lenders across Australia gives you more flexibility in structuring the loan, matching the drawdown schedule to your builder's needs, and locking in a construction loan interest rate that converts to a variable or fixed rate once the build is done. If you're planning a house renovation loan or a home improvement loan rather than a full new build, the same preparation principles apply, though some lenders treat renovations differently and require a quantity surveyor's report before approving the loan amount.
Call one of our team or book an appointment at a time that works for you. We'll walk through your building contract, make sure your deposit structure lines up with what lenders expect, and set the application up so your first drawdown happens when your builder needs it.
Frequently Asked Questions
What documents do I need to apply for construction finance in Lakelands?
You need a fixed price building contract from a registered builder, council approval or development application, a detailed progress payment schedule, and standard income documents like payslips or tax returns. The building contract must show the total cost broken down by stage, and the progress payments need to align with your lender's drawdown schedule.
How does interest work during the construction phase?
Lenders only charge interest on the amount drawn down at each stage, not the full loan amount. Your repayments increase progressively as each stage completes. Most lenders offer interest-only repayment options during construction, converting to principal and interest once the build is finished.
What happens if my builder's payment schedule doesn't match my lender's drawdown stages?
You'll need to cover the gap yourself or find a lender with more flexible progressive payment options. If your builder wants 20% upfront but your lender only releases 10% at base stage, you need cash reserves to fund the difference or renegotiate the contract.
Can I use a cost plus contract for construction finance?
Yes, but fewer lenders offer finance for cost plus contracts because the final loan amount is less predictable. You'll need a detailed cost estimate and lenders typically require a larger deposit or charge a higher interest rate compared to fixed price contracts.
How long do I have to start building after my construction loan is approved?
Most lenders require you to commence building within six months from the approval date. If you don't start on time, the lender can withdraw the approval or ask you to reapply with updated income and property details.
