As a tradie, you know the ins and outs of building homes for others. But when it comes to financing your own construction project, the loan structures can feel like uncharted territory. Let's break down how construction loans work and what structures are available to help you build your dream home.
What Makes Construction Loans Different
Unlike standard home loans where you receive the full loan amount upfront, construction loans use a progressive drawdown system. This means you only access funds as you need them throughout various stages of the project. The lender will only charge interest on the amount drawn down, not the total loan amount - which can save you thousands during the building process.
Most construction loans offer interest-only repayment options during the building phase, helping manage cash flow while you're potentially paying rent elsewhere or managing reduced income during your build.
Common Construction Loan Structures
Progress Payment Structure
This is the most common structure for construction loans. Funds are released according to a Progressive Payment Schedule that aligns with construction milestones. Typical stages include:
• Land purchase (if applicable)
• Slab and foundation
• Frame stage
• Lock-up stage (roof and walls complete)
• Fixing stage (plumbing, electrical, flooring)
• Practical completion
As a registered builder yourself, you'll understand these milestones well. Each drawdown requires an inspection to confirm the work meets the required standard before funds are released.
Turn-Key or Fixed Price Structure
Perfect for house & land packages or when working with builders on fixed price contracts. The loan amount is predetermined based on the contract price, and payments follow the agreed schedule. This structure works well when buying off the plan or using established builders with set processes.
Owner-Builder Structure
If you're planning to be the registered builder on your own project, this structure allows more flexibility in how funds are drawn. You'll need to demonstrate your building credentials and provide detailed council plans and permits. This option lets you pay sub-contractors directly and manage the build timeline according to your schedule.
Understanding Valuations and Loan Amounts
Construction loans typically use an 'as if complete' valuation. This means the lender assesses what your property will be worth once construction is finished, not just the current land value. The loan amount is usually calculated as a percentage of this completed value.
For tradies undertaking major home renovations rather than new builds, the valuation considers both the existing property value and the projected value after improvements.
Key Considerations Before Applying
Location and Council Requirements
Your ideal location needs suitable land that meets council restrictions and regulations. If you're planning to demolish existing property for a new build, factor in demolition costs and timing. A development application may be required depending on your project scope.
Timeline and Deadlines
Most lenders require you to commence building within a set period from the Disclosure Date - typically 6-12 months. Make sure your timeline accounts for permit approvals and contractor availability.
Additional Costs
Be aware of Progressive Drawing Fees charged each time you access funds. These typically range from $300-$500 per drawdown. Also consider Out of Contract Items not included in your building contract but necessary for completion.
Making Your Construction Loan Work
Plan Your Cash Flow
With interest-only repayments during construction, make a plan for when the loan converts to principal and interest after completion. Factor this into your budget planning.
Choose Your Price Range Wisely
Ensure your loan amount aligns with realistic building costs in your area. As a tradie, you'll have insider knowledge of material and labour costs - use this to your advantage.
Consider Renovation vs New Build
A home improvement loan structure might suit major renovations better than starting fresh. Compare the costs and benefits of each approach for your situation.
Working with the Right Finance & Mortgage Broker
Having access to Construction Loan options from banks and lenders across Australia means you can compare interest rates and structures to find what works for your project. A streamlined application process designed for tradies understands your unique income patterns and project requirements.
Whether you're a plumber, electrician, or any other trade professional, construction loans can be structured to match your building timeline and cash flow needs. The key is understanding which structure aligns with your project type and personal circumstances.
Call one of our team or book an appointment at a time that works for you to discuss your construction loan options and find the right structure for your building project.
