What each part of the process means, and how much you’ll pay.
If you’re building or substantially renovating a home, you’ll need a specialised type of home loan called a construction loan. These loans work differently from standard home loans as they follow through the various stages of construction.
As your new home is built, your builder will hit certain milestones. While a traditional home loan disburses all the funds at settlement, a construction home loan disburses them in stages as these milestones are reached. These disbursements are called progress payments or drawdowns. You will have already paid at least a 5% deposit to your builder, and your lender will disburse the rest of the funds throughout the construction process.
Generally, your builder and lender will work together to determine the schedule for these progress payments. During the process of building or substantially renovating your home, you’re likely to have five of them.
1. Foundations and footings
At this stage of construction, 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.
All in all, you can count on this stage of construction taking about two weeks as the concrete for your foundation is allowed to dry and cure.
At the completion of this stage of construction, your lender will make your first progress payment to your builder. This will generally be around 10% of the total funds for construction.
2. Frame-up and brickwork
At this stage, 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.
This stage is longer than the initial foundation stage and is likely to take up to four weeks.
At the completion of this stage, the second progress payment will be made. This payment will account for around 15–20% of the total construction funds.
3. Lock-up stage
At the end of the lock up stage, your home will be sealed and protected from the elements. During the lock-up stage of construction, doors and windows will be installed. All exterior walls will also be completed.
The lock-up stage can take up to four weeks.
At the completion of this stage, your lender will make the third progress draw payment to your builder. This is one of the most significant drawdowns, making up 20–35% of the total building funds.
At the fit-out stage of construction, all fixtures, fittings and appliances will be added. This means 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 put in place.
By now your house is starting to look like a home. The fit-out stage is where a significant amount of the construction of your home takes place. This stage can take up to six weeks.
At the end of this stage, your lender will make the fourth progress payment to your builder. This will account for 20–30% of the total funds.
5. Practical completion
Once the practical completion stage is over, you’ll have a finished house. It’s during this time that 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 eight 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. This will be around 10–15% of the total funds. After this stage, your construction home loan will also be converted into a traditional home loan.
It’s important to note that this stage does not include some final works, such as pouring your driveway and completing landscaping. These works often aren’t included in a building contract, which means you may have to organise separate contractors for these jobs.
Nevertheless, at the end of this final drawdown, you’ll be able to move into your new home.