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Compare construction loan rates in December 2023

Get a competitive construction loan from 6.14% to build the home of your dreams and learn how the construction finance process works.

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Name Interest Rate p.a. Comparison Rate p.a. Fees Monthly Payment
Principal & InterestInterest only10% min. depositInvestment
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Principal & Interest20% min. depositOwner-occupier
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Principal & Interest20% min. depositOwner-occupier
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Principal & Interest20% min. depositOwner-occupier
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Application: $750
Ongoing: $0 p.a.
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Principal & Interest10% min. depositOwner-occupierOffset account
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Principal & Interest20% min. depositOwner-occupier
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What is a construction loan?

If you want to build your own home on an empty block of land you'll need a construction loan rather than a normal home loan.

You can use a construction loan to cover the cost of both buying a block of land and the construction, or just the construction itself. With a construction loan your lender releases funds at each stage of the construction process rather than all of it upfront.

Construction loans tend to have higher interest rates. Borrowers also need to provide more paperwork to the lender to show they have a council-approved building plan and a fixed contract with a licensed builder.

How do construction loans work?

With a construction loan, your lender considers the total amount you need to borrow in order to pay your builder. Then it breaks down the full amount into separate payments called progress draws.

You receive a payment at the completion of each stage of the construction project rather than all at once. Repayments at this stage are usually interest-only. You don't start paying off the loan principal until the house is complete.

Here's a quick example:

  • You're building a $350,000 house on a $600,000 block of land (total cost $950,000).
  • You buy the land first and your lender releases $350,000 to cover the cost.
  • You are now paying interest only on the first $350,000.
  • Construction starts and your builder requires $100,000 to cover the foundations.
  • Your lender releases a further $100,000 of your funds to cover this. You're now paying interest on $450,000.
  • You continue borrowing instalments as construction progresses. Once completed, you've borrowed the full $950,000.
  • Now you're repaying the entire loan amount, plus interest.

How do repayments work on a construction loan?

Construction loan repayments are interest-only during the construction stage. And you only pay interest on the money you've drawn on to cover the next construction stage.

This means you're not repaying the full loan amount until you've moved in to the house.

Once construction is complete, you start making principal-and-interest repayments on the loan. This is when you start repaying the debt plus interest.

The benefit of this repayment structure is that your repayments during construction are minimal, because you only pay interest on the money you've spent.

Drawdown fees explained

Some lenders charge a drawdown fee for each stage of a construction loan. This means you pay a fee (typically around $100 – $200) when you access more of the loan at each stage of construction.

What kind of borrowers need a construction loan?

Constructions loans are a suitable mortgage for:

  • Owner-occupiers buying land to build their own homes to live in
  • Owner-occupiers building homes on land they already own
  • Existing home owners looking to make substantial renovations
  • Investors looking to build a new investment property

Owner builder mortgages

You can get a construction loan as an owner-builder but it is much harder. The vast majority of banks and lenders will prefer that you choose a licensed builder to construct your home before they extend a construction loan to you.

However, there are some lenders that will allow you to build your own home as an owner-builder. This is ideal if you're a qualified tradesperson or if you have a building licence of your own, but an owner-builder loan isn't suited to the faint of heart.

How to apply for construction finance

Getting a construction loan approved takes a bit more paperwork than other home loans. Here's a rough outline of the process:

  1. Start by comparing construction loan rates from multiple lenders (see the table above) to get a competitive deal.
  2. Work out roughly how much you can afford to borrow for your construction loan, based on your income.
  3. Make sure you have evidence of your income and expenses, a detailed building plan (with council approval), a contract from a licensed builder and proof that your builder has the necessary builder's insurance.
  4. You can usually apply for a construction loan on your chosen lender's website, or potentially over the phone or in a branch.
  5. The lender will examine all your documents and conduct a land valuation before (hopefully) approving your loan.
  6. Once approved, construction can begin and your lender will release funds as needed (according to the agreed-upon building plan).

Construction loan contracts are a bit more complicated than other loan contracts. With any property transaction, you should always have an expert solicitor or conveyancer review any contracts before you sign them.

Understanding the 5 steps of a construction loan

With construction loans, funds are paid in stages known as progress draws. These stages correspond to the progress of your home's construction. They can vary a little depending on your builder and lender, but generally are as follows:

1. Foundations and footings

  • The building site is cleared of any vegetation and debris, and is levelled. Footings for your house are installed and spaces are cut out for the site's plumbing.
  • During this time, the concrete slab for your house will be poured. After this, initial plumbing and waterproofing will be installed.

2. Frame-up and brickwork

  • The framework, trusses, roof and windows will be constructed. If your home has brickwork, this will be partially done.
  • Gutters and insulation will also go in at this stage, as will any conduits for plumbing or electrical work.
  • At the completion of this stage, the second progress payment will be made.

3. Lock-up stage

  • During the lock-up stage of construction, doors and windows will be installed. All exterior walls will also be completed.
  • At the end of the lock-up stage, your home will be sealed and protected from the elements.
  • Your lender will make the third progress draw payment to your builder. This is one of the most significant drawdowns, often making up 20–35% of the total building funds.

4. Fit-out

  • At the fit-out stage of construction, all fixtures, fittings and appliances will be added.
  • Plumbing and electrical work is completed, gutters and downpipes are installed, skirting boards, cornices and architraves are added, kitchen benches and cupboards are put in and shower screens, mirrors, sinks, toilets and faucets are installed.
  • At the end of this stage, your lender will make the fourth progress payment to your builder.

5. Practical completion

  • Your home is almost finished. Your builder will work on the finishing touches, including painting, any final electrical or plumbing work, final installations of appliances and any other detailing.
  • At the end of this stage, which can take up to 8 weeks, you'll do a final walkthrough of your property to identify any problems, and the builder will walk you through the property's features.
  • Your lender will also do a final inspection before disbursing the final progress drawdown. After this stage, your construction home loan will also be converted into a traditional home loan.

The pros and cons of construction loans


  • With a construction loan you only pay interest charges at first, and only on the money you spent at each construction stage. This keeps your loan costs down during construction.
  • Once approved, you should begin construction as soon as possible. But most construction loans have some flexibility, allowing you to commence construction for several months or even a year from the approval date (or even longer).
  • While you have to pay stamp duty on the vacant land purchase, stamp duty doesn't apply to home construction. This is potentially a big saving.


  • Construction loans have higher interest rates and may have more fees than standard home loans.
  • It's harder to get approval for a construction loan. You'll need a contract with a licensed builder, a council-approved plan and builder's indemnity insurance. Once approved, any major changes in construction will require approval from your lender.

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49 Responses

    Default Gravatar
    SueApril 8, 2018

    Hello, we have bought a block with cash with another couple. There is no money owed at all by anyone. There are two couples, four people on the title. We plan to build two townhouses and subdivide the block in half. The property would temporarily be on two titles. My question is- I have approx half the cash needed for the build. We will need to apply for a construction loan to obtain the additional funds to build the home. Is it possible to obtain a construction loan for our townhouse whilst there are four names on the title. Both couples are building at the same time using the same builder. Plans have been drawn up together and been passed at council together.
    Thank you- I desperately need some suggestion about the best way to do this.

      Default Gravatar
      BalaMay 17, 2018

      It is possible to get separate loans for the construction for both couples and you both will be responsible for your own portion of the loan repayments, provided we use the same lender and the same builder to build both properties, cross collateral will be required. Both couples will need to be guarantors on loans ie Couple A will need to be Guarantors on couple B loan and vice versa. Thanking you. Bala

      MayMay 18, 2018Finder

      Hi Bala,

      Thanks for your inquiry.

      The approval of your (and husband’s) separate construction loan will depend entirely on the lender based on their assessment of both of your overall financial situations, including but not limited to both your income, liabilities, assets, credit history, etc. In the case of guarantor loans, the lender will also assess if your guarantor also meets the criteria. Not sure though if you two can be a guarantor for each other’s loan. You can find a full guide on how a guarantor loan works.

      I suggest that you speak to a mortgage broker who can take your circumstances into account as they can find a suitable construction loan for you and your husband.


      MayApril 9, 2018Finder

      Hi Sue,

      Thank you for your question.

      It would be best to speak to all the persons whose names are on the title so they would know that you’ll be using the title to secure a loan. I would suggest that you speak to the lender directly as well about this so they can arrange the mortgage according to your situation. In any case, best to get a legal advice on this too to avoid future problems.

      Meantime, there are construction home loan brands listed above which you can contact with and discuss your options for a loan and your situation.


    Default Gravatar
    DionOctober 3, 2017

    Hi Finder!

    I am interested in buying land from an Estate, and once titles are received, build a house on top. What respective loans would I need to apply for to make this happen?


      Default Gravatar
      DanielleOctober 4, 2017

      Hi Dion,

      Thank you for contacting finder. We are a comparison website and general information service, we’re more than happy to offer general advice.

      You are on the right page. You may review and compare the offers available on the table. Once you have selected one, you may proceed by clicking the green “Enquire Now” button. And if you scroll down you’ll find more information regarding these types of loans so it should serve as a reference guide.

      I hope this helps.


    Default Gravatar
    KenJuly 7, 2017

    Hi Guys, I have purchased a property which I paid 20% deposit with a mortgage of $600K. I am currently drawing plans to build a new house on this block, I have $120K savings and need a further $450K to complete build, so total will be $1.05M. Will a bank lend us the 450K on existing mortgage to start building? Will they combine it once the build is complete? We will have no issue serving the size of the debt.
    Cheers Ken

      Default Gravatar
      JonathanJuly 11, 2017

      Hi Ken!

      Thanks for the comment. :)

      As long as your credit resources are able to meet the qualifications of the lenders, why not? As for combining the loans, usually it is not. You would have two separate mortgages if that happens, one regular home loan and another one for construction loan.

      If this interests you, please learn more about mortgage brokers and how they can help you.

      Hope this helps.


    Default Gravatar
    DavidMay 18, 2017

    I want to build a house to create equity and sell it. I have only $60k in savings, but would need double that to meet the 80% LVR of what I have in mind. Are there any lenders for residential investors like me who will lend against the completed value of the property? This would solve my problem of having less than 20% as a deposit.

      DeeMay 28, 2017Finder

      Hi David,

      Thanks for your question.

      Kindly note that lenders that do offer owner builder mortgages will usually limit the loan amount to 60% of the total land value and construction cost. The lender will take into account the value of the vacant land as part of the valuation total. However, the actual completed value of the home is rarely taken into account when factoring in the value of the security property with owner builders.

      You may have to directly get in touch with the lenders listed on the page to confirm if they consider the completed value of the property in connection to your loan application.


    Default Gravatar
    LynNovember 4, 2016

    I own a block of land outright and wish to build a house on it. The house cost will be somewhere around 160K of which I have 80K. Therefore the construction loan I require would be for 80K approx. The problem I have is that I am an aged pensioner. (67 yo). Is it still possible to get a loan?

      HaroldNovember 4, 2016Finder

      Hello Lyn,

      Thank you for your question.

      There are possible options you may explore if you want to find home loans For pensioners. For eligibility requirements, some home loans will require you to meet certain eligibilities in order to take out that home loan. This may include a regular source of income, good credit history, and more. Pensioners in particular should compare the eligibility requirements of home loans because some may be more appropriate to apply for than others. Also, you may check pensioner loans if you wish to check other possible options.

      I hope that helps.


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