What to Know About Construction Loan Fees

Construction Loan Fees: What Landscapers Need to Know

As a landscaper looking to build your dream home or develop a custom design property, understanding construction loan fees is crucial to your financial planning. Construction finance works differently from standard home loans, and the fee structure reflects the additional complexity involved in funding a building project.

Whether you're considering a land and construction package, planning to renovate your house, or looking at house & land packages, knowing what fees to expect will help you budget accurately and make informed decisions.

How Construction Funding Works

Unlike a regular home loan where you receive the full loan amount upfront, construction funding operates on a progressive drawdown system. Lenders only charge interest on the amount drawn down at each stage of construction. This means you'll pay interest in instalments as your registered builder completes various phases of your project.

The construction draw schedule typically aligns with your progress payment schedule, releasing funds as specific milestones are reached. This protects both you and the lender, ensuring money is available when needed to pay sub-contractors like plumbers and electricians, while also confirming that quality construction standards are being met.

Common Construction Loan Fees

When you apply for new home construction finance, you'll encounter several fees specific to building loans. Here's what to expect:

Application and Establishment Fees

Most lenders charge a construction loan application fee to process your loan. This covers the cost of assessing your finances, verifying your income (particularly relevant if you're self-employed), and reviewing your building contract and council plans.

Progressive Drawing Fee

This is one of the most significant fees unique to construction finance. The Progressive Drawing Fee covers the lender's costs for administering multiple payment releases throughout your build. Banks and lenders across Australia charge anywhere from $300 to $800 per drawdown, and you might have 5-7 drawdowns during a typical build.

Some lenders charge this fee upfront as a single amount, while others charge it at each progress inspection. When you access construction loan options from banks and lenders across Australia, comparing this fee structure can save you thousands of dollars.

Progress Inspection Fees

Before releasing funds at each stage, lenders typically arrange a progress inspection to verify the work has been completed to an acceptable standard. These inspections usually cost between $150 and $350 each. The inspector confirms that construction is progressing according to the approved council plans and building standards before authorising the next payment.

Interest During Construction

During the building phase, you'll typically have interest-only repayment options. The construction loan interest rate might be slightly higher than standard home loan rates due to the increased risk and administration involved. However, because you only pay interest on the amount drawn down so far, your initial payments will be relatively low and increase as construction progresses.

For example, if your total loan amount is $500,000 but only $150,000 has been drawn down, you'll only pay interest on the $150,000.

Land Registration and Legal Fees

If you're purchasing suitable land as part of a land and build loan, you'll need to pay registration fees and legal costs for the land transfer. These vary by state but typically range from $2,000 to $5,000.

Understanding Fixed Price Contracts vs Cost Plus

The type of building contract you sign affects your loan structure and potential additional costs:

Fixed Price Building Contract

With fixed price contracts, you agree to a set price with your registered builder upfront. This provides certainty and makes budgeting simpler. Your Progressive Payment Schedule will be based on predetermined stages, and you won't face surprise cost increases (except for variations you request).

Cost Plus Contract

Under a cost plus contract, you pay the actual cost of materials and labour plus a builder's margin. While this can offer more flexibility for custom home finance projects, it makes final costs harder to predict. Lenders are typically more cautious with these arrangements and may require larger deposits or have stricter borrowing capacity requirements.

Timeline and Approval Requirements

Before construction finance is approved, you'll need several documents in order:

1. Development application and council approval for your project
2. Fixed price building contract with a registered builder
3. Evidence that you can commence building within a set period from the Disclosure Date (usually 6-12 months)
4. Proof of suitable land ownership or conditional purchase contract
5. Detailed building plans and specifications

These requirements apply whether you're pursuing spec home finance, project home loan options, or owner builder finance.

Special Considerations for Landscapers

As a landscaper, you understand construction processes and project management, which can work in your favour during the construction loan application process. Your industry knowledge helps you:

• Better communicate with builders and understand progress payment finance
• Identify quality construction issues early
• Potentially negotiate better terms with contractors
• Understand site works and landscaping costs that others might overlook

If you're looking at home loans for landscapers specifically, specialist brokers can help you present your application in the most favourable light, particularly if your income structure is variable or seasonal.

Construction to Permanent Loan Options

Many borrowers choose a construction to permanent loan, which transitions from construction finance to a standard home loan once building is complete. This saves you from having to refinance and pay additional application fees when your home is finished.

With this structure, you'll pay construction-specific fees during the build, then convert to standard principal and interest or interest-only repayments once you receive your occupancy certificate. Some lenders even offer the option to make additional payments during construction to reduce your loan balance faster.

Other Construction Finance Scenarios

Construction loans aren't just for building new homes. Similar finance structures apply to:

• House renovation loan projects requiring staged payments
• Off the plan finance for apartments or townhouses
• Home improvement loan funding for major extensions
• Dual occupancy or duplex developments

Each scenario has its own fee structure and requirements, so speaking with a renovation Finance & Mortgage Broker who understands tradie finances can help you find the most suitable option.

Making Construction Fees Manageable

While construction loan fees add to your upfront costs, several strategies can help:

• Build these fees into your overall project budget from the start
• Compare different lenders' fee structures, not just interest rates
• Consider lenders who charge flat fees for all drawdowns rather than per-drawdown fees
• Ensure your building contract has a clear progress payment schedule to avoid disputes
• Keep contingency funds for unexpected costs or delays

Working with a mortgage broker who specialises in tradie finances means you'll access construction loan options from banks and lenders across Australia, not just the lenders you know. This broader access often results in finding loan structures that better suit your circumstances and reduce overall fees.

Building your new home is an exciting journey, and understanding the fee structure helps you plan confidently. Whether you're building a custom design property on your own land or purchasing one of many available house & land packages, knowing what fees to expect means you can focus on creating the home you've always wanted.

Call one of our team or book an appointment at a time that works for you. We'll walk you through the construction finance process, explain all fees clearly, and help you find suitable construction funding for your building project.