How this lending option works
Construction finance releases funds progressively as work is completed. The land, plans, contract, valuation, borrower contribution and contingency need to align before the lender can approve and manage progress payments.
- New homes and knockdown rebuilds
- Progress-payment structures
- Renovations and owner-builder scenarios
How progress payments work
Instead of advancing the full building cost at settlement, the lender generally pays approved stages after receiving invoices and any required inspections. Interest is usually charged on the amount drawn, while the undrawn balance remains available for later stages subject to the facility terms.
Budget, valuation and contingency
The lender normally considers the fixed-price building contract, plans, specifications and an on-completion valuation. Variations, site costs, delays and cost overruns can create a funding gap, so a realistic contingency and clear source of additional funds are important.
Renovations and knockdown rebuilds
A small renovation may suit an equity release or loan increase, while structural renovations or a new home build may require construction funding with progress draws. The appropriate approach depends on the scope, valuation, contract and borrower contribution.
Common questions
Can I use equity to fund a renovation?
Potentially. The structure depends on the scope, amount, available equity, valuation and whether the lender needs to control payments through construction stages.
Do I need a fixed-price building contract?
Many residential construction lenders require one from an acceptable licensed builder. Other arrangements, including owner-builder projects, can have more limited lender options and different requirements.
What happens if construction costs increase?
The borrower is generally responsible for funding overruns unless additional finance is separately approved. Variations can also affect valuation and drawdown timing.
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