I'm Jason Birks, a Brisbane mortgage broker. I spent over ten years lending at Westpac and NAB before starting Birks Financial Group, and I compare more than 60 lenders. I help with land and build packages, knockdown rebuilds and major renovations.
How progress payments work
Instead of paying the full amount at the start, the lender releases money as each stage of the build is finished. In Queensland, the stages are typically:
- Deposit, which for a domestic building contract of $20,000 or more is capped at 5% of the contract price
- Base or slab
- Frame
- Enclosed (lock-up)
- Fixing
- Practical completion
Your builder invoices each stage, you approve it and the lender pays the builder, often after an inspection or valuation update.
Interest during the build
You pay interest only on the amount drawn so far, and most lenders let you make interest-only repayments during construction. Once the home is finished, the loan switches to principal and interest. If you're renting while you build, that's two housing costs at once, so I'll factor it into your budget.
What lenders need
- A fixed-price contract. With a licensed builder (QBCC licensed in Queensland). Cost-plus contracts and owner-builders are much harder to finance.
- Plans and specifications. The valuer uses these to value the home as if it were complete.
- Council or certifier approvals. Usually needed before the first construction payment.
- Builder's insurance. Including home warranty cover, which in Queensland is through the QBCC.
Where builds go off track
- Variations. Changes after the contract is signed usually have to be paid by you or approved by the lender first.
- Out-of-contract items. Driveways, fencing, landscaping and window coverings are often not in the builder's price. Plan for them from the start.
- Time limits. Some lenders want construction to start within a set time after you buy the land.
First home buyers building in Queensland
Building can unlock the most help: no transfer duty on a new home or vacant land at any price for eligible first home buyers, and the $30,000 First Home Owner Grant on a new home valued under $750,000. See my first home buyer page.
Questions people ask
Can I get a construction loan with a 5% deposit?
Sometimes, through the 5% Deposit Scheme or with LMI. Some lenders also accept construction under a professional LMI waiver.
Do I make repayments during the build?
Usually interest only on the amount drawn so far. Repayments rise as more stages are paid.
Can I get a loan for a knockdown rebuild?
Yes. The lender values the land and the finished home, and you'll need somewhere to live during the build.
What if the build costs more than planned?
You'll need to cover the difference or apply to increase the loan, so a buffer for variations and out-of-contract items is worth having.
How much deposit do I need for a construction loan?
Much the same as buying: 20% avoids LMI, and some lenders accept 5% to 10% with LMI, the 5% Deposit Scheme or a professional waiver. Budget for out-of-contract items too.
