Construction Loans in Sydney: Built Around Your Build

What Is a Construction Loan?

A construction loan (also called a building loan) is a type of home loan specifically designed to fund the construction of a new residential property. Unlike a standard home loan where the full amount is advanced upfront, a construction loan releases funds progressively, in stages, as each phase of the build is completed. This structure means you only pay interest on the amount that has been drawn down at any point, not on the full loan balance. During the construction period, most lenders offer interest-only repayments. Once the build is complete, the loan converts to a standard home loan with principal and interest repayments.

Construction loans are used for new house builds on vacant land, house and land packages, knock-down rebuilds on established blocks, dual occupancy and duplex builds, and major structural renovations (generally above $50,000). The loan is structured around your fixed-price building contract, and funds are released to your builder at each agreed milestone (slab, frame, lock-up, fix-out and completion).

How Does a Construction Loan Work?

The 5 standard progress payment stages: Most Australian construction loans are structured around five standard drawdown stages. At each stage, your builder submits a progress claim, you authorise the drawdown, and the lender releases the funds directly to your builder.

1. 1
   Stage 1: Slab (Base): The concrete foundation is laid and initial plumbing is roughed in. Approximately 15–20% of the total loan is drawn down at this stage, which may include the builder's initial 5% deposit.
2. 2
   Stage 2: Frame: External wall frames are erected, brickwork begins, and roofing, plumbing and electrical rough-ins are installed. Approximately 20% of the loan is drawn down.
3. 3
   Stage 3: Lock-Up: Remaining windows, external doors and roofing are completed so the home can be secured. Approximately 20% of the loan is drawn down.
4. 4
   Stage 4: Fix-Out (Fit-Out): Internal finishes are installed: lights, power points, plumbing fixtures, cabinetry and internal doors. Approximately 30% of the loan is drawn down at this stage.
5. 5
   Stage 5: Completion (Practical Completion): Final finishes are completed, including fencing, site cleanup, painting and any contracted landscaping. The final drawdown (approximately 10%) is released upon practical completion and issuance of an occupation certificate.

At completion, the construction loan automatically converts to a standard home loan (variable or fixed), and normal principal and interest repayments commence. Your lender may request a progress inspection at each stage before releasing funds.

Key Facts About Construction Loans in Australia

• Minimum deposit: Most lenders require a minimum 5% deposit for standard house-and-land packages and new builds with a licensed builder and fixed-price contract. A 20% deposit avoids Lenders Mortgage Insurance (LMI). From 1 October 2025, eligible first home buyers can access the Australian Government's 5% Deposit Scheme for construction and new builds, avoiding LMI with as little as a 5% deposit.
• Interest during construction: You pay interest only on the drawn-down balance, not the full approved loan amount. This reduces your holding costs significantly while the build is underway, particularly helpful if you're also paying rent during construction.
• Interest rates: Standard house-and-land packages with licensed builders and fixed-price contracts attract rates comparable to standard home loans. Acreage, duplex or dual occupancy builds may attract a small rate premium (typically 0.25% to 0.75%) due to reduced lender competition. Owner-builder projects are considerably more expensive, with rates typically 1%–2% higher and significantly fewer lender options.
• Fixed-price building contract required: Most lenders require a fixed-price contract from a licensed builder before approving a construction loan. This gives the lender certainty over the final loan amount and build timeline.
• Build timeline: Most lenders allow 12 months from the first drawdown for construction to be completed. You generally need to access your first drawdown within 6–12 months of loan approval.

Types of Construction Loans We Arrange

We work across every build type and borrower situation. Here's what we help with.

1. 1

   Standard House Build Loans (New Builds)

   Building a new home on a vacant block (whether you've already purchased the land separately or are buying land and building simultaneously) is the most common construction loan scenario. Lenders are most accommodating for these builds because the risk profile is straightforward: licensed builder, fixed-price contract, standard residential construction in a well-serviced area. We match you to the right lender based on your deposit, income type, the land location and your builder's registration. For builds in Sydney's northwest growth corridors (Box Hill, Marsden Park, Schofields, Rouse Hill), we have strong experience placing borrowers with lenders who understand these markets.

2. 2

   Land and Construction Loans

   A land and construction loan combines the land purchase and the build into a single loan structure. The land component settles first (which is when your first loan repayments commence), and the construction loan then draws down progressively as each build stage is completed. Getting the structure right from the start matters here. We ensure the lender's policy supports your land settlement timeline and builder commencement date, so there's no gap between land settlement and build start that leaves you paying full principal and interest before construction has begun.

3. 3

   Knock-Down Rebuild Loans

   If you own an existing property and want to demolish and rebuild, a knock-down rebuild loan uses the equity in your land as security for the construction loan. Because you already own the land, the loan structure is often simpler; you're borrowing only for the construction costs, against a security (the land and finished home) that lenders assess conservatively. Lenders need to see council demolition approval, a licensed builder and a fixed-price building contract. We work through the pre-application checks with you before approaching lenders, so there are no surprises once the process starts.

4. 4

   First Home Buyer Construction Loans

   First home buyers building a new home have access to the same government support schemes available for property purchases, and in some cases more: NSW First Home Owner Grant (FHOG), $10,000 tax-free for eligible builds (house and land combined cost must not exceed $750,000). 5% Deposit Scheme (Home Guarantee Scheme): from 1 October 2025, eligible first home buyers can build with as little as a 5% deposit while avoiding LMI, with no income caps and no limit on scheme places (Sydney cap $1,500,000 for combined land and construction value). NSW Stamp Duty Exemption (FHBAS): full stamp duty exemption on land valued up to $350,000, concessional rate for $350,001–$450,000. We confirm your eligibility for all applicable grants and schemes before you begin.

5. 5

   Investment Property Construction Loans

   Building an investment property attracts higher interest rates and stricter serviceability assessment than owner-occupier construction loans. Lenders assess rental income projections (usually at an 80% rental shading factor), your existing debt position and your total portfolio exposure. For investors, the construction period can work in your favour from a cash flow perspective: interest-only on drawn funds during the build means lower holding costs before the property is tenanted. We structure investment construction loans to balance current cash flow with future borrowing capacity.

6. 6

   Owner Builder Loans

   Building a home yourself (without engaging a licensed builder as principal contractor) is significantly more complex from a lending perspective. Owner-builder projects are treated as high-risk by most lenders: most major banks do not offer owner-builder loans, and those that do require a maximum LVR of 60% (40% deposit minimum), proven construction experience and extensive documentation. We work with a small panel of specialist lenders who assess owner-builder applications. We're direct with you about what's required so you don't waste time on an application that won't succeed.

7. 7

   Duplex and Dual Occupancy Construction Loans

   Building two dwellings on a single title (whether side-by-side or main house and secondary dwelling) is achievable through residential construction loans for up to four dwellings. Lenders for duplex builds require council approval for dual occupancy, detailed construction plans and a builder with demonstrated experience in multi-dwelling residential construction. Some lenders offer competitive rates for dual occupancy builds, including up to 90% LVR for certain scenarios. Lender selection matters significantly here; this is exactly where a broker with specialist lender access makes a real difference.

How the Construction Loan Process Works

From initial strategy call to final drawdown, here's how we manage the process for you. 6 steps from first call to completion.

1. 1

   Strategy Call and Pre-Qualification

   We start with a conversation about what you're building, where, with which builder (or whether you're still selecting one), and your financial position (income, deposit, existing debts). We identify the right loan structure and lender shortlist before any application is lodged.

2. 2

   Pre-Approval

   We prepare and lodge your pre-approval with the most suitable lender. For construction loans, this involves assessing your income and financial position in the same way as a standard home loan, but without the building contract (which comes later). Pre-approval gives you a confirmed borrowing limit so you can finalise your land purchase, select a builder and sign a building contract with confidence.

3. 3

   Full Approval: Building Contract and Plans

   Once your fixed-price building contract is signed, we lodge the full application. The lender assesses the building contract, plans and specifications, confirms the final loan amount, and may commission a construction valuation (an "as if complete" valuation). Approval typically takes 5–10 business days for straightforward applications.

4. 4

   Land Settlement (Land and Construction Loans)

   For land and construction packages, land settlement occurs first. Your loan repayments begin at this point on the land component. We coordinate with your conveyancer to ensure settlement proceeds on time and the construction drawdown schedule is ready to activate when building commences.

5. 5

   Progress Drawdowns During Construction

   At each build stage, your builder submits a progress claim. We walk you through what's needed for each drawdown request (typically a signed progress claim, an invoice from your builder and confirmation that the stage is complete). Some lenders require an independent progress inspection before releasing funds. We manage communication with the lender throughout the build to keep drawdowns moving without delays.

6. 6

   Final Drawdown and Loan Conversion

   At practical completion, the final drawdown is released to your builder and the loan converts from a construction loan to a standard home loan. We review the converted loan rate and structure, and reach out if refinancing or restructuring makes sense once the build is done and you've established your equity position.

How Much Deposit Do You Need for a Construction Loan?

Deposit requirements for construction loans in Australia depend on your build type, your borrower profile and which lender you're working with.

1. 1

   Standard house-and-land and new builds

   Licensed builder, fixed-price contract

   Minimum 5% deposit. Borrowing above 80% LVR triggers LMI. A 20% deposit (80% LVR) avoids LMI and accesses the most competitive rates and broadest lender choice.

2. 2

   First home buyers using the 5% Deposit Scheme

   From 1 October 2025, eligible first home buyers can build with a 5% deposit with no LMI, no income caps and no limit on scheme places. The government guarantees up to 15% of the loan value through participating lenders.

3. 3

   Duplex and dual occupancy builds

   Typically 10–20% deposit. Some lenders allow up to 90% LVR for standard dual occupancy scenarios.

4. 4

   Acreage and rural builds

   Lenders are more conservative here. Most require 20%+ deposit with reduced lender competition compared to suburban builds.

5. 5

   Owner-builder

   Minimum 40% deposit (maximum 60% LVR) at most lenders who accept owner-builder projects.

Other Costs to Budget For

1. Builder deposit

   Builders typically require a deposit of approximately 5% of the construction contract price before commencement. This is separate from your home loan deposit.

2. Land stamp duty

   Transfer duty is payable on land purchase in NSW and must be paid within 3 months of signing the land contract. First home buyers building on land valued up to $350,000 may qualify for a full stamp duty exemption under the First Home Buyers Assistance Scheme, with a concessional rate on land from $350,001–$450,000.

3. Council approvals and permits

   Development Application (DA) or Complying Development Certificate (CDC) fees, depending on your council and build type.

4. Construction insurance

   Most lenders require Home Building Compensation (formerly Home Warranty Insurance) to be in place before construction commences. Your builder is generally responsible for arranging this under NSW law.

5. Valuation fees

   Construction loans may require multiple valuations during the build: an initial "as if complete" valuation at approval, and sometimes progress inspections at each stage. We confirm the lender's valuation requirements upfront.

6. Contingency

   Cost overruns are common in construction. We generally recommend maintaining a 5–10% contingency reserve in savings, as construction loans cannot typically be increased mid-build if your contract cost exceeds the approved amount.

Why Use a Construction Loan Broker in Sydney?

Construction loans are more complex than standard home loans; there are more documents, more stages, more lender-specific policies to navigate, and more things that can go wrong if the application isn't prepared correctly.

Not every lender handles construction loans well. Some have slow drawdown processes that frustrate builders and delay your build. Some have policies that don't suit your builder's contract structure, land location or build type. Some have valuation approaches that underestimate the end value of your finished home, which affects your approved loan amount.

We know which lenders on our panel of 50+ are fastest and most builder-friendly for standard Sydney builds, which ones have the most favourable policies for dual occupancy, knock-down rebuild and acreage projects, and which ones move efficiently through the drawdown process so your builder isn't waiting on funds. Working with a specialist construction loan broker in Sydney (one who has dealt with hundreds of builds across the Hills District, northwest Sydney, southwest Sydney and beyond) means your application is prepared correctly the first time, with the right lender, and the drawdown process is managed so your build stays on schedule.

Plan with Our Free Calculators

Estimate repayments, borrowing power and stamp duty before you build. Use our free tools to get your numbers in order:

1. 1

   Loan Repayment Calculator

   Estimate your monthly construction or home loan repayments based on loan amount, interest rate and term. Useful for modelling different deposit and build-cost scenarios.

2. 2

   Borrowing Power Calculator

   See how much you could borrow for your build based on your income and expenses. Helps you plan land and construction budgets before you talk to a lender.

3. 3

   Stamp Duty Calculator

   Calculate transfer duty on your land purchase in NSW. First home buyers can check eligibility for stamp duty exemptions or concessions.

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