A step-by-step guide to lending for your New Home Build
This week, I had the pleasure of sitting down with Charlotte from CC Mortgages to chat about everything you need to know about lending for a new home build.
What really stood out to me is that there’s a lot to consider when securing finance for a new home build. It’s essential to have advisors with you along the way to make sure you're getting all the steps right and not missing out on any opportunities.
There are several stages involved in building a new home. In the beginning, it's all about getting your finance together and exploring the opportunities available to you. Once you're underway, it’s about making your dream home a reality and watching it get built one bit at a time.
For those building their first home, understanding the connection between getting your lending right and having a building contract that works with your lending is key to achieving the best outcome on your new home build.
We’ve put together this guide to take you from the first step of preparing to build your new home, right through to the end. Here's everything you need to know to set yourself up for success with lending and your building contract.
Start here: figuring out your finances
At the very start of your journey, having a builders boots on the ground may feel a little way off. The first step is all about figuring out what you can build—understanding your budget and what opportunities you can take advantage of right now.
Figuring out your lending capacity
The first question you’ll likely ask is, "How much can I actually borrow?" Charlotte has all the answers on this. It’s a mixture of your lending capacity and how much you have in the bank as savings.
When a bank lends for construction, they do an "as if complete" valuation. They’ll review the plans and contract, value the property based on sales data, and break down the land and home improvements portion.
There are a few opportunities to maximise your budget, such as smart arrangements for land purchasing, valuations, or taking advantage of grants available when you’re buying and building.
The type of loan
Once you know how much you can borrow, it’s time to speak with your mortgage broker—Charlotte, of course!—about how the loan will work. Mortgages for construction are different from regular mortgages. As your build progresses, your loan will be drawn down and repayments are typically interest-only, and then convert to principal and interest repayments once the build is complete.
Building your support team: Mortgage Broker, Building Contract Advisor, Conveyancer
This is the time to build a solid team around you. A mortgage broker will help you get the best out of your budget, while a building contract advisor (like myself!) will help ensure your building contract works with your lending arrangement, not against it. Together, we’ll make sure your project is set up for success.
Before engaging a builder
It might be tempting to focus on choosing tiles and floor plans (the fun part!), but we’re here to say that your building contract and lending docs can be just as rewarding.
When you’re ready to start talking to a builder, it’s important not to lose sight of the big-ticket items. Getting the right lending and building contract arrangements in place now will pay off during your build.
Understanding how construction loans are paid
As soon as the first progress claim needs to be paid, your mortgage will usually start needing to be repaid. This typically involves interest-only payments, and as each progress claim is paid to the builder, your repayments may increase in line with the amount of the loan that has been drawn down.
To figure out what will need to be paid when, take a good look at the payment schedule section in your building contract. Ensure the payments reflect the actual construction progress and there’s no front-loading. A building contract advisor can review this section to ensure it aligns with industry standards and meets your bank’s expectations.
Being prepared for the realities of building: Lending Expectations, Timeframes, Delays, and Variations
There are a few realities to be aware of when building. First, be clear about your lender's expectations. Are there conditions around how soon building works need to start or finish? Make sure your building contract aligns with these timelines.
Second, have a plan for delays. While no one likes to expect them, delays happen. Make sure you’ve factored in extra costs and that your contract includes liquidated damages (where the builder compensates you for delays they cause).
Finally, plan for variations. No matter how much you hope they won’t happen, they do. It's a good idea to set aside 10% of your build price for variations or speak to your lender about covering them.
Hidden costs to consider
Along with your build price, there are other costs to plan for, such as:
Site setup costs
Utility connections
Permits
Design fees
Make sure you have a plan for these expenses to avoid stress later on.
During your build
Notice of commencement
When your builder starts work, ensure you receive a Notice of Commencement. Your bank will need this for their records, and it will define the start of the building period. Keep track of any delays to see if valid extensions are needed or if the builder is running late.
Making progress payments
Progress payments are made in stages throughout the build. Some banks may want to inspect the site at key stages, like when the slab is down or before the final payment. Ensure you’re reviewing these payments against the contract.
End of the build
Loan transitions into principal & interest
Once your build is complete, it’s time to celebrate! Your loan will usually transition from interest-only to principal and interest repayments. This is a good time to review your finances, as you’re no longer paying rent or other living costs—those funds can now go towards paying off your new mortgage.
Insuring the property
Once the build is finished, you’ll need to ensure the appropriate home insurance is in place. Some banks will also require this before paying the final claim.
Practical Completion Inspection (PCI) + Final Payment
Before the final payment, your builder will issue a Notice of Completion. This is your chance to conduct a practical completion inspection. Create a defect list of anything that needs fixing. Once those defects are addressed, you can make the final payment.
Once the final payment is made, you’ll receive the keys to your new home! Make sure you also ask for:
All keys and warranties for appliances or systems
User manuals for installed systems
Any remaining certificates (insurance, building completion)
I had so much fun putting this guide together with Charlotte. We hope it helps you navigate lending and your building contract for your dream home build.
Building can be one of the most exciting times in your life—especially when you’ve got the right people around you.
If you have any questions, Charlotte and I are here to help. Charlotte is all over the lending side, and I’ve got the building contract covered.
Wishing you the best of luck with your new home build!
Happy building,
Annelyse and Charlotte
https://www.ccmortgages.com.au/ | https://www.buildtogetherpm.com.au/
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Written by Annelyse, Building Contract Enthusiast, Project Manager, and founder of Build Together Project Management.
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