Construction Loans

How Construction Loans Work

A construction loan is a type of home loan designed specifically for building a new home—whether for personal use or as an investment—rather than purchasing an existing property. Construction lending works differently to a standard home loan, mainly in how the funds are released.

Instead of receiving the full loan amount upfront, your lender releases funds in stages, called progress payments, as your builder completes each phase of construction (for example: slab, frame, lock-up, fit-out, and completion).

Before each payment, the lender may inspect the property to confirm the work has been completed, ensuring the build stays on track.

Benefits of a Construction Loan

What Lenders Consider

Loan-to-Value Ratio (LVR)

Interest savings during construction:

You generally only pay interest on the funds that have been drawn down—not the full loan amount. This helps manage cash flow, especially if you’re paying rent or other expenses while building.

Flexible structure:

Construction loans usually convert to a standard home loan once the build is complete. Repayments then move from interest-only (during construction) to principal and interest, unless you’ve chosen another structure

Approval is based on:

• Your financial position

• Your builder’s fixed-price contract

• Council-approved building plans

• The lender’s valuation of the completed property

Having a clear, fixed building contract and a licensed builder is essential.

The LVR is a key factor in construction lending. Lenders generally assess LVR against the “as if complete” value of the property, meaning the expected value once construction is finished—not just the land or partially completed property.

This value is determined using your fixed-price building contract and approved plans, helping ensure the loan is properly structured from the outset.

Building a home can be complex, and construction loans require careful planning and management. At White Willows Finance, we work closely with you and your builder to:

• Ensure your loan is structured correctly from day one

• Maximise cash flow and minimise interest costs during construction

• Navigate lender requirements and approvals smoothly

• Provide guidance on repayments, LVR, and loan conversion at completion

With access to multiple lenders and expert knowledge of construction lending, we can help you find the loan that fits your goals and keeps your build on track.

How White Willows Finance can help