Getting your construction loan settled can feel like learning a new trade from scratch. But once you understand the process, you'll be managing your loan like a seasoned pro. Let's break down everything you need to know about construction loan settlement and how it works for tradies across Australia.
Understanding Construction Loan Settlement Basics
Construction loan settlement works differently from standard home loans. Instead of receiving one lump sum, you'll access funds through a progressive drawdown system. This means the lender releases money in instalments as your project reaches specific construction milestones.
When applying for a loan, lenders will assess your project using an 'as if complete' valuation. This determines the loan amount based on your property's expected value once construction finishes. The interest rate and loan terms depend on various factors including your financial position and the project scope.
The Progressive Payment Schedule
Your construction loan operates on a Progressive Payment Schedule that aligns with different stages of your build:
• Site preparation and foundations - Usually 10-15% of the total loan amount
• Frame stage - Typically 20-25% when the structure is up
• Roof and external walls - Another 20-25% portion
• Internal fit-out - Around 25-30% for plumbing, electrical, and fixtures
• Final completion - The remaining balance upon practical completion
As a registered builder, plumber, or electrician, you'll likely understand these stages well. The advantage is that lenders only charge interest on the amount drawn down at each stage, not the full loan amount from day one.
Ready to get started?
Book a chat with a Finance & Mortgage Brokers at Tradie Home Loans today.
Settlement Requirements and Documentation
Before each drawdown, your lender requires specific documentation:
- Builder's progress certificate - Confirming work completion at each stage
- Council inspections - Showing compliance with council plans and permits
- Invoices and receipts - Proving costs for materials and labour
- Statutory declarations - From you or your builder about work progress
For tradies doing owner-builder projects, you'll need to provide evidence that sub-contractors have been paid and all work meets Australian standards.
Interest-Only Repayment Options
During construction, most lenders offer interest-only repayment options. You'll only pay interest on funds already drawn down, which helps manage cash flow while you're not yet living in the property or generating rental income.
Once construction completes, your loan typically converts to a standard principal and interest mortgage. Some lenders allow you to maintain interest-only payments for a set period after completion.
Managing Progressive Drawing Fees and Costs
Each time you request funds, lenders charge a Progressive Drawing Fee - usually between $300-$500 per drawdown. Factor these costs into your budget when planning your build timeline.
Remember that Out of Contract Items not included in your fixed price contracts will need separate financing arrangements. This might include:
• Landscaping beyond basic requirements
• Premium fixtures and fittings
• Additional structures like sheds or pools
• Driveways and external works
Timeline Requirements and Planning
Most construction loans require you to commence building within a set period from the Disclosure Date - typically 6-12 months. This protects lenders from market changes and ensures projects move forward promptly.
When you make a plan for your build, consider:
• Ideal location - Factor in council restrictions and development application requirements
• Price range - Include contingencies for cost variations
• Suitable land - Ensure your block meets council regulations
• Construction timeline - Allow buffer time for weather delays and material availability
Special Considerations for Tradies
As someone in the trades, you have unique advantages when accessing Construction Loan options from banks and lenders across Australia. Your industry knowledge helps you:
• Better understand construction contracts and progress certificates
• Identify potential issues before they become costly problems
• Manage relationships with sub-contractors more effectively
• Navigate council approval processes with confidence
Whether you're planning major home renovations, a new build, or buying off the plan, your trade background positions you well for construction loan success.
Alternative Options
If a construction loan doesn't suit your needs, consider a home improvement loan for smaller projects or renovation work. These typically offer faster approval but may have higher interest rates for larger amounts.
House & land packages sometimes offer different financing structures, where you might use separate loans for land purchase and construction phases.
Understanding your construction loan settlement options puts you in control of your building project's financial success. With proper planning and the right support, you can manage the progressive drawdown process smoothly and avoid unnecessary additional payments or delays.
A skilled renovation Mortgage Broker can help you access Construction Loan options that align with your project timeline and budget requirements.
Ready to start your construction loan journey? Call one of our team or book an appointment at a time that works for you. We'll help you find the right construction loan solution for your building project.
