After 30 years of walking Brisbane families through their builds, we’ve watched hundreds of clients navigate construction finance, and we’ve seen the same sticking points come up again and again. Most of them are avoidable with the right preparation.
A construction loan works differently from a standard mortgage, and understanding those differences early makes the whole building process smoother. Unlike a traditional home loan, a construction loan releases funds progressively as your build reaches key milestones, which means you only pay interest on the money that’s actually been drawn down.
We advise and support clients through finance approval to final handover. This guide explains how construction loans work from the builder’s side of the fence, so you know what to expect before you start.
What is a Construction Loan?
A construction loan funds the creation of your new home rather than the purchase of an existing property. The lender releases money in stages throughout your build instead of giving you one large sum upfront. This system means you’ll draw down an agreed amount at each stage, such as slab, frame, and lock-up.
This approach is straightforward. You only pay interest on the amount you’ve used at any given time. For example, say you’ve had a $500,000 loan approved and the first invoice is $50,000 for the slab. With a normal loan, you’d be paying interest on the total $500,000 amount; whereas with a construction loan, you’ll only pay interest on the $50,000 until the next stage.
Most lenders require interest-only repayments on the drawn amount during the building phase. This keeps your costs down while your home takes shape, helping you budget for rent or other living expenses at the same time. Once construction is complete, your loan converts into a regular home loan.
How Land and Construction Loans Work Together
https://www.ojpippin.com.au/house-and-land-packages/When you purchase a house and land package, you’re financing two components. The land loan covers the cost of your block, with the lender providing funds at settlement. You’ll begin making repayments once the land settles.
The construction component activates separately. You provide your total deposit when the land settles and finance the remainder for the land portion on an interest-only basis. This approach gives you time to finalise building plans after securing your land. Construction must start within 12 months of land settlement, and builders get 24 months from the first drawdown to complete the build.
From our side, one of the most important steps clients can take during this window is to finalise their selections early. Delays in choosing inclusions, finishes, or upgrades are one of the most common reasons builds run close to that 24-month boundary. We’ll flag this with you from the start so it doesn’t become a problem later.
How the Progress Payment System Works
The Progress Payment System
With the progress payment method, your approved loan amount sits ready, but funds are only released as your builder completes specific milestones. This approach protects both you and your lender by tying payments to tangible construction progress. Banks send qualified inspectors to verify completion of work before authorising each payment, so you’re never paying for work that hasn’t been completed.
Key Payment Milestones
Your construction experience unfolds across five to six distinct stages, and each triggers a payment release.
- The deposit stage: Covers council-approved plans and permits, and gets your build officially underway. This is also the stage where having your finance formally approved matters most. We’ve seen builds delayed by weeks because pre-approval wasn’t converted to formal approval in time.
- The base or slab stage: Foundations are laid and the concrete slab is poured. It’s the last natural point to raise any changes to your floor plan, since modifications after this stage become significantly more expensive.
- The frame stage: Your home’s skeleton comes together with walls and roof trusses. At this point, you’ll get your first true sense of scale and space.
- Lock-up stage: Windows, doors, roofing, and external walls are completed. From a finance perspective, this is one of the larger drawdowns.
- The fixing or fit-out stage: Your home comes to life with plumbing, electrical work, kitchen, and bathroom fittings installed. It’s when all those selections you made with us months earlier start showing up in your home.
- Completion: Final touches, including painting, and site clean-up. We prepare thoroughly for the final inspection so it goes smoothly. Keys are handed over once all work is finished and approved.
Converting to a Standard Home Loan After Completion
When construction is done and you receive your final invoice, your lender will arrange a final inspection. If all goes well, your construction loan converts to your chosen loan type after you make the final progress payment.
Repayments switch from interest-only to principal and interest unless you selected a longer interest-only period. This move increases your repayments because you’re now reducing the loan balance and paying interest.
What Your Builder Needs Before Finance Can Be Finalised
If you are building for the first time, you may be surprised to learn your lender needs a fixed-price building contract, before they can approve your construction loan. That document comes from us, and there are a few things we need from you before we can produce it.
Specifically, we need your selections locked in, including:
- Your floor plans
- Inclusions
- Any upgrades or modifications
- Your chosen facade
Until these are confirmed, we can’t provide an accurate fixed price, and without that, your lender can’t finalise your loan. The earlier we can get you a fixed-price contract, the sooner your finance can be formally approved and the sooner your build can start.
The fixed-price contract your lender receives from us will include your full scope of work, specifications, inclusions, and a construction timeline. Some lenders will also ask for quotes on any items not covered in the contract, for example, engaging a separate contractor for external landscaping.
How to Get Approved for a Construction Loan
Once you’ve decided to move forward with your Brisbane build, you need to gather the right documents. Our team can help you throughout this process to avoid delays, but it helps to know what’s required upfront.
Essential Documents for Your Application
Your lender needs to verify your financial position and the details of your building project. You’ll need these when submitting your formal application:
- Personal identification: driver’s licence or passport
- Documents confirming income and employment details
- Confirmation of assets and liabilities
- Details of your expenses
- Fixed price building contract with plans, specifications, and inclusions
- Quotes for any work not covered in your builder’s contract
One thing to note here is the First Home Owner Grant. In most cases, the Queensland FHOG is not paid until after your slab is poured, when your first construction repayment is due. This means it shouldn’t be factored into your initial land deposit calculations. Your broker can advise on the best way to structure your deposit with this timing in mind.
Council Approvals and Building Permits
Council-approved plans are non-negotiable for construction loan approval. You’ll need to provide your lender with council-approved plans or building permits within 6 months of loan approval. Neighbour objections or design review panels can extend this timeframe. When you work with OJ Pippin, we’ll help you get these sorted and keep you updated every step of the way.
Valuation Process for Your New Home
Your lender organises a valuation to confirm the projected value of your new home while assessing your loan. This valuation estimates what your property will be worth once construction finishes, not just the land value. This is something the lender coordinates with registered valuers who assess both land-only and on-completion values, so you won’t have to worry about this step.
Lenders Mortgage Insurance (LMI)
If you’re borrowing more than 80% of your total project cost (land plus construction), most lenders will require Lenders Mortgage Insurance. LMI protects the lender in the event of default, and the cost is typically added to your loan rather than paid upfront. If you qualify for the First Home Guarantee Scheme, you may be able to avoid LMI even with a deposit below 20%.
Common Questions About Construction Finance in Brisbane
How much can I borrow for a house and land package?
Your borrowing capacity depends on your financial position and the total project cost, which includes both the land purchase price and the construction contract. A strong financial position with perfect credit history and genuine savings may allow you to borrow up to 95% of construction costs.
What deposit do I need for a construction loan?
Most lenders require between 10–20% of the total project cost. If you own land already, equity in that land may count toward your deposit. First home buyers may be able to use the FHOG to supplement their deposit, though the grant timing needs to be planned carefully, as noted above.
What if my build runs over the 24-month window?
If your build looks like it might run beyond 24 months from the first drawdown, speak to your lender early about the terms in your letter of offer.
From our experience, the most common causes are council approval delays and clients not having selections finalised before work begins. We actively manage both, flagging potential council issues early and encouraging clients to lock in their choices before the build starts. Builds that go overtime almost always trace back to decisions that weren’t made early enough.
What if my build costs more than the approved loan amount?
Cost overruns can occur when building expenses exceed what was agreed in the progress payment schedule, for example, if you add upgrades or make specification changes mid-build. If you exceed your approved amount, you’ll need to cover the extra cost yourself or discuss additional funding with your lender.
This is one of the key reasons we use fixed-price contracts. When your contract is properly structured upfront, there should be no surprises in your progress payments. Any variations you request after the contract is signed will be handled as formal variations with a clear cost agreed before work proceeds.
Ready to Take the Next Step? Talk to Our Team
Construction finance can feel complicated, but once you understand how the stages work and what’s required at each one, it becomes much more manageable. We’ve been supporting and advising clients for over 30 years, helping clients with their finance obligations. If you’re thinking about building in Brisbane, the best first step is a conversation. Our team can walk you through our available house and land packages, give you a realistic picture of the total cost of your build, and connect you with trusted brokers who specialise in construction finance.
Get in touch with our team today, or explore our current house and land packages to see what’s available in Brisbane.
