Here’s a general breakdown of what happens when you get a construction loan, from the start of the build to getting the keys to your new home.
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How do construction loans work?
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Step 1: We notify you and your builder when construction can start
Construction should begin as soon as possible. The funds will be available to draw down for up to two years from the disclosure date on your construction loan contract.
Step 2: Your builder begins construction in stages
There are typically five stages of construction, plus the deposit. Your builder will issue an invoice at each stage.
- Deposit to the builder
This is before construction starts and uses about 5% of your total loan funds. - Slab
Your foundation slab is measured and poured. About 10-15% of your funds will be used for this stage.
- Frame
Walls, support structures, electrical and plumbing conduits, gutters and insulation for your property are built. About 20% of funds are typically used for this stage.
- Lock-up
Windows, doors, external walls and roofing are installed. About 20% of funds are used.
- Fitting
Internal fittings and fixtures like lights, power points and other electrical and plumbing fixtures are installed using about 30% of funds. - Completion
Final detailing and painting are completed as well as contracted items like fencing and site clean-up. About 10% of funds are used.
Step 3: We make progress payments
As each stage is completed, you’ll pass us the invoice from your builder and authorise us to pay your builder using the funds from your loan. This means you’re only ever paying for work that’s been completed.
We'll let you know when you need to authorise a progress payment.
Step 4: You make interest only repayments
Until construction is complete, you’ll only pay the interest on your loan. If you've selected a direct debit repayment option, this will be debited monthly.
The interest amount is calculated based on your loan’s interest rate and the owing balance on your loan. Remember that your owing balance will increase every time we release funds to pay one of your builder’s invoices, which means your interest payments will increase throughout construction.
Step 5: We complete inspections and valuations at certain stages
We’ll organise valuations with your builder to make sure everything is on track during construction.
These are typically done:
- At the assessment stage, before construction
- At the slab or base stage
- Before the final progress payment.
We can also request additional valuations at any stage.
Step 6: Your builder completes the work, and the final payments are made
When construction is finished, we’ll conduct a final valuation of the property to make sure it’s been built as per the original plans and specifications.
We’ll also ask you to provide:
- A copy of the insurance policy or Certificate of Currency for the building – make sure you put Bankwest as the mortgagor of the property
- Receipts of any payments made to your builder
- A copy of the certificate of occupancy or occupancy permit, may be required - this is issued by your local authority.
We’ll then make the final progress payment to the builder.
Step 8: You make loan repayments for the duration of your contracted loan term
After the final progress payment is made, you'll need to start making loan repayments. If you've chosen to pay interest only until fully drawn (IOUFD), you'll start repayments on both the principal (loan amount) and interest.
If you chose an interest only term when you applied for the loan, you'll continue to pay interest only for three or five years.
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Home loans that help you build a home
Construction loans are designed to help monitor the build – and you only need to pay the interest on your loan until construction is done. A construction loan can also be used to finance renovations.
Frequently asked questions
We’ll only make payments up to the amount stated on the Progress Payment Schedule for each stage of construction. If you go over this amount, you’ll need to organize payment for the excess funds yourself.
You can also borrow more, but this will need to be part of a new construction loan application.
Making changes to your construction plan could impact your loan arrangements. If you're planning to make changes, you'll usually need to make sure you've got enough money in your savings to cover any additional cost or shortfall yourself.
Any changes to the terms of your loan (like a variation or a product change) may require a brand new construction loan application.
Construction should start as soon as possible, the funds will be available for draw down for up to two years from the day your loan is disbursed. If construction is not completed by then, your total loan amount may be reduced to the amount currently owing - meaning additional loan funds may not be provided past 24 months.
If you're worried your build won't be completed within 24 months, call us on 13 17 19 and we'll talk you through your options.
A progressive drawdown is the portion of the loan paid at each stage of construction – like your progress payments.
Need more help?
Talk to a Home Lending Specialist – when and where it suits you.