Construction loans are different from standard home loans — they pay your builder in stages, interest is calculated only on the drawn balance, and the structure has to actually match your builder's progress claim schedule. We get the structure right.
Staged-drawdown finance for building or renovating
A construction loan funds the build of a new home, a major renovation, a knock-down rebuild or a custom build — releasing money to the builder in stages as the work progresses. You only pay interest on what's been drawn, not the full loan amount, which keeps holding costs lower during the build.
The structure matters. Each lender has its own progress claim approval process, valuation requirements at each stage, contingency policy, owner-builder rules and end-of-construction conversion to standard home loan terms. Getting the lender right at the start avoids drama at slab, frame and lock-up stages.
We've structured construction loans for first home builders, established owner-occupiers doing major renovations, custom builds with architects, and complex knock-down rebuild projects. Each profile suits different lenders.
Step-by-step
Securing a construction loan in Melbourne: a step-by-step guide
If you're looking for a construction loan in Melbourne, the process looks a little different from a standard mortgage — a construction mortgage pays your builder in stages rather than releasing the full amount upfront. We arrange construction loans for clients across Melbourne, from first home builders to experienced renovators, matching each build to a lender suited to that profile. As a construction loan broker, here's the sequence we take clients through, from first enquiry to final drawdown:
Confirm borrowing capacity. Before you sign a building contract, we work out how much you can borrow and what deposit is needed, factoring in land cost (if applicable) and the full build price.
Compare lenders for your build type. Lenders differ in how comfortably they handle custom builds, volume house-and-land packages, renovations or owner-builder projects.
Lodge with the fixed-price contract. Formal assessment needs your signed building contract, plans and specifications so the lender can order a valuation.
Valuation and conditional approval. The lender's valuer assesses the land and proposed build to confirm the as-complete value supports the loan amount.
Formal approval and mortgage documents. Once approved, loan documents are issued and signed ahead of the first drawdown.
Drawdowns through construction. Funds release at each stage as your builder submits progress claims, through to handover.
Whether you need a construction home loan in Melbourne for a volume-built house and land package, or finance for home building a custom architectural design, getting this sequence right from the start avoids delays once your builder is ready to begin works.
How it works
The standard construction loan drawdown schedule
1. Deposit / Land
Funds released to secure land if buying. If you already own the land, this stage is skipped and funds release directly to the builder's deposit invoice.
2. Slab
Site cut, footings, slab poured. Lender requires builder's progress claim and lender-instructed valuer inspection before releasing this drawdown.
3. Frame
Structural frame complete. Walls, roof trusses, floor structure in place. Second valuer inspection required.
4. Lock-up
Roof, external walls, doors and windows installed — building is weatherproof and secure. Third drawdown.
Final touches, paint, fixtures, certificate of occupancy. Final drawdown plus retention release.
Common build profiles
What kind of build are you doing?
House & land package
Standard volume-builder home on land you've contracted to buy. Most lenders straightforward — clean approvals, predictable valuation, standard drawdown schedule.
Knock-down rebuild (KDR)
Demolish existing home, build new. Lender treats existing dwelling value as zero for valuation. Interest-only during build phase. Common in established Melbourne suburbs.
Custom architectural build
Architect-designed custom home, often with non-standard finishes. Higher build cost, valuation can lag actual build cost, requires careful lender selection.
Major renovation / extension
Construction loan secured against existing dwelling. Typically released alongside the existing home loan or as a refinance + construction structure.
Owner-builder
You're acting as builder yourself. Significantly tighter lender criteria — only some lenders will lend to owner-builders, requires owner-builder license and detailed cost breakdown.
Dual-occupancy / granny flat
Adding a second dwelling to your block. Treated as a construction project but with valuation upside (two dwellings) on completion.
Knock down rebuild
How to finance a knock-down rebuild in Melbourne
Knock down rebuild loans fund the demolition of an existing house and construction of a new one on the same block — common across established Melbourne suburbs where the land is worth more than the existing dwelling.
The finance is structured much like a standard construction loan, with staged drawdowns and interest charged only on the amount drawn, but with a few extra considerations. The lender values the land as though the existing home is already gone, so the as-complete valuation carries more weight than it would for a vacant block. You'll usually need to settle or roll in any existing mortgage on the property, arrange demolition alongside (or ahead of) the build contract, and confirm your builder's progress claim schedule covers demolition right through to handover.
Because land value, demolition cost and build cost all need to line up for the lender's valuer, getting the right lender involved from the outset makes a real difference to how smoothly a knock-down rebuild is approved. We work through this with clients from the first enquiry, matching the project to lenders comfortable with KDR valuations before a building contract is signed.
Client stories
Real outcomes for real clients
★★★★★
"The team made what felt like a daunting process completely manageable. We secured a rate the bank wouldn't touch directly and were in our first home eight weeks later."
SM
Sarah & Tom M.First home buyers · Brunswick VIC
★★★★★
"After years of being told no by the majors for our self-employed structure, MortgageHQ found a solution. Approval came within a fortnight and on competitive terms."
JR
James R.Self-employed · South Yarra VIC
★★★★★
"We refinanced our commercial property and unlocked equity for a second purchase — they structured the whole deal across two lenders. Saved us hundreds of basis points."
DK
Diana K.Commercial investor · Hawthorn VIC
Answers
Construction loans — frequently asked questions
How is interest calculated on a construction loan?
Interest is charged only on the amount that's been drawn so far — not on the full approved limit. So at slab stage you might be paying interest on $250k of a $600k facility; by lock-up that might be $400k; full balance by handover. This keeps holding costs lower during the build.
Do I make principal repayments during construction?
No — almost all construction loans operate interest-only during the build phase. Once the build is complete and the loan converts to a standard home loan, principal and interest repayments typically commence.
How long does the construction phase last?
Most volume builds run 6–9 months from slab to handover. Custom architectural builds can run 12–18 months. Lenders typically allow up to 12–18 months for the construction phase before the loan must convert to standard terms or refinance.
Can I borrow 95% of the build cost?
Most lenders cap construction LVR at 90% for first home builders, 80% for upgraders. Above 80% LMI applies. The valuation done at the start (land + build contract value) determines maximum lending; if the as-complete valuation comes in lower than expected, you may need to contribute additional deposit.
What happens if the build runs over budget?
Lenders set a contingency at the start (typically 5%) for minor cost overruns. Significant overruns require additional deposit funds from you, a top-up of the loan (subject to fresh approval), or a variation submitted through the lender's progress claim process.
Can I get a construction loan as an owner-builder?
Yes, but it's more restrictive. Most major lenders don't lend to owner-builders at all. Specialist lenders do, with tighter LVR (often 70% max), proof of owner-builder license, detailed cost breakdown verified by an external quantity surveyor, and tighter draw conditions. We know which lenders will work with owner-builders.
Can I get pre-approval for a construction loan?
Yes — construction loan pre-approval works much like a standard home loan pre-approval, giving you an indicative borrowing limit before you commit to land or sign a building contract. The lender assesses your income, deposit and the proposed project, but formal approval still depends on the fixed-price building contract, plans and the as-complete valuation once those are available. Pre-approval is particularly useful for knock-down rebuilds in established eastern suburbs such as Kew, where you are often buying an existing home before the new build is fully designed. Contact us to start a pre-approval and we will match you to the lenders that suit your build type. If you're planning a build or knock-down rebuild in Kew, the same pre-approval process applies — we can give you an indicative borrowing limit before you've locked in a block or builder.
How do construction loans work for renovations?
For a renovation, the construction loan is secured against your existing dwelling and released to the builder in stages as the work progresses, in the same way as a new build. It is typically set up alongside your existing home loan or as a refinance plus construction structure, depending on your current lender and equity position. Interest is charged only on the amount drawn so far rather than the full approved limit, and repayments are usually interest-only until the work is complete. Lending is based on the as-complete valuation, so plans, a fixed-price contract and council approvals need to be in place before funds are released.
Can I get a construction loan for an extension or addition?
Yes — extensions and additions are funded the same way as other renovation work, through a construction loan secured against the existing property with staged drawdowns tied to your builder's progress claims. A second dwelling such as a granny flat or dual occupancy is also treated as a construction project, often with valuation upside on completion because the block ends up with two dwellings. You will generally need a fixed-price contract from a registered builder, council approval and an as-complete valuation to support the lending. Talk to us about which lenders handle extensions and additions most comfortably.
How do I finance a knock-down rebuild?
A knock-down rebuild is financed through a construction loan that funds the demolition and new build in stages, with interest charged only on the amount drawn so far rather than the full approved limit. The lender values the land as though the existing home is already gone, so you'll typically need to settle or roll in any existing mortgage, arrange demolition alongside the build contract, and have a lender comfortable with KDR valuations before signing. See our knock-down rebuild finance section for the full process.
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The information on this website is general in nature and does not constitute financial, legal or taxation advice. Lending criteria, interest rates and product availability are subject to change and vary between lenders. Individual circumstances affect loan eligibility and terms. We recommend seeking independent financial and tax advice before making any borrowing decisions. Credit subject to lender approval. Mortgage HQ Pty Ltd is Credit Representative 391662 of Australian Finance Group Ltd, Australian Credit Licence 389087.
