Three Things to Know about Construction Funding

Are you thinking about renovating or building a property but aren’t sure about construction funding?

Essentially, they are loans providing funding for property building or renovation in phased lender payments following your construction stage, with principal and interest repayments beginning once the property is almost built- usually between 12-24 months. Usually, they also have a variable rate, with the maximum LVR being 95%, though this will fluctuate depending on your lender.

But whatever your goals are, AAA Mortgages can help. With over 30 years of knowledge, including being a construction loan broker and a specialised finance manager on our team, we are deeply experienced with varying situations and requirements and can support all your build needs.

Want to speak to us today about arranging construction funding? Click here to book a free 1-hour appointment with our experts today.

So, let’s dive into the top three things you need to know about construction finance.

Any additional financial questions? Click here to find out how AAA Mortgages can help you today!

How to apply for a construction loan

After you have decided to go through with construction funding, your chosen lender will assess your borrower credentials and construction contract.

Overall, this means you will have to supply the following for them to review:

  • Identification

  • Proof of Income

  • Monthly Living Expenses

  • Employment stability

  • And Credit Score

For your contract, your lender will look at the property’s value increase after construction to ensure that the total borrowing amount won’t exceed the property’s value once completed. Though with investment properties, they could also factor future rental yield into this. Further, depending on your lender, you might need to provide some additional construction documentation, including:

  • A copy of the building contract between yourself and the builder concerning construction (and a copy of their license)

  • The builder’s bank account details for progress payments

  • A copy of the construction plans and specifications approved by your local council

  • Home Warranty Insurance

  • A Builder’s All Risk Policy and a certificate of currency for that insurance, along with Public Liability Insurance

  • Any additional quotes for items such as flooring, driveways and landscaping

  • Your progressive payment schedule, if you’re doing the building yourself

However, for builders, lenders need their documentation too, such as construction license details, council construction approval, insurance and construction schedule.

The construction loan process

In the contract, your builder will outline the total cost of construction, broken down into five portions paid at the build’s critical stages. We strongly recommend reviewing the contract with your builder so you can understand what is added or removed from it.

Once approved, your lender will release phased payments, usually varying at 5-20% per stage. This means that as construction stages are completed, you’ll need to send an invoice from your builder to the lender to use your loan.

Generally, the construction loan process is as follows:

  1. Site Prep: potentially involving demolition, site levelling, debris clearing and soil testing to prepare for building.

  2. Base or slab down: where your builder continues with measurements for your plans, including the foundations, plumbing and ground-works.

  1. Frame: Building and the internal and external supports, including plumbing and electrical conduits, roofing and window frames.

  2. Lock-up: All fittings that lock up the property, significantly doors, windows and walls. Additionally, all plumbing and electrical work begins here. Repayments may also start here.

  3. Fit-out: This is the penultimate stage and involves painting and the last inspection for installing cabinets, taps and sinks, and internal doors.

  4. Completion: Revolves around everything required to complete construction, such as painting, cleaning and fixing minor issues.


During construction, you might make ‘Interest only’ payments though after, the construction loan functions as a regular mortgage. This means regular monthly repayments are required, and will include elements of both the principal and interest.

To help with your repayments, we recommend the following tips:

  • Maintain income, employment stability and a good credit score

  • Look for a construction loan with features such as:

  • Offset account

  • Redraw facility

  • Flexible construction time – 12-24 months

  • Larger repayment options, or options to increase repayment frequency

Disclaimer: The information provided is general in nature and does not constitute financial advice. Please speak to us for recommendations on your individual circumstances and requirements.