Construction Loan Fees: Everything You Need to Know

What Are Construction Loan Fees?

When you're planning to build your dream home in Kingscliff, understanding construction loan fees is crucial to your budgeting process. Unlike standard home loans where you receive the full loan amount upfront, construction loans work differently. Lenders release funds in stages as your build progresses, which means the fee structure is somewhat unique.

Construction finance involves several specific charges that you won't find with traditional mortgages. These fees cover the additional work lenders and banks undertake to assess your building project, inspect progress, and release funds at various construction stages. Let's break down what you can expect to pay when you apply for new home construction finance.

Progressive Drawing Fees

One of the most common fees you'll encounter is the Progressive Drawing Fee. This charge applies each time the lender releases funds to your registered builder based on the progress payment schedule. Typically, lenders will conduct a progress inspection before releasing each instalment to ensure the work completed matches the amount being claimed.

The Progressive Drawing Fee usually ranges from $200 to $400 per drawdown, depending on your lender. Some banks include a certain number of progress payments in their standard loan package, while others charge for each inspection. When you're building a new home, there are typically five to six progress payments throughout the construction process, covering stages such as:

• Base stage (slab or foundation)
• Frame stage
• Lock-up stage (walls, windows, and roof complete)
• Fixing stage (internal linings and fixtures)
• Practical completion

These inspection fees cover the cost of having a qualified assessor visit your building site to verify that construction has reached the required stage before releasing funds.

Application and Approval Fees

When you submit your construction loan application, you may encounter establishment or application fees. These can range from $0 to $1,000 depending on the lender and your specific situation. Many lenders across Australia have reduced or waived these fees in recent years, but it's worth checking what applies to your construction finance package.

You'll also need to factor in costs related to obtaining council approval and submitting your development application. While these aren't technically loan fees, they're essential expenses that form part of your overall project budget. Council fees vary depending on your local area and the complexity of your build.

Valuation and Legal Fees

Before approving your building loan, lenders require a valuation of both your suitable land and the proposed construction. For a land and construction package or land and build loan, you'll typically need two valuations: one for the land (if you already own it) and another for the completed property value.

Valuation fees generally range from $300 to $600 depending on the property location and type. In Kingscliff and surrounding areas, valuers need to assess not just the land value but also review your council plans, fixed price building contract, and specifications to determine the completed property value.

Legal fees for settlement and documentation preparation are another consideration. These costs vary depending on whether you're purchasing land and building simultaneously or already own the block.

Interest Charges During Construction

Here's where construction funding becomes more affordable than many people expect. With construction loans, you only charge interest on the amount drawn down at each stage. This means you're not paying interest on the full loan amount from day one.

Most construction finance products offer interest-only repayment options during the building period, which typically lasts six to twelve months. You'll only pay interest on the progressive drawdown amounts as they're released. For example, if your total loan amount is $500,000 but only $150,000 has been drawn for the base and frame stages, you'll only pay interest on $150,000.

Once construction reaches practical completion, your construction to permanent loan typically converts to standard principal and interest repayments (unless you arrange otherwise). The construction loan interest rate during the building phase may differ slightly from your ongoing rate, so clarify this with your finance & mortgage broker.

Cost Plus vs Fixed Price Contracts

The type of building contract you choose can impact your loan fees and approval process. With fixed price contracts, lenders have more certainty about the final cost, which can streamline your construction loan application. A fixed price building contract specifies exactly what you'll pay, making it easier to structure your progress payment finance.

Alternatively, a cost plus contract might involve additional scrutiny from lenders, potentially resulting in higher fees or more frequent inspections. This contract type is common with custom home finance where you're creating a unique custom design rather than selecting from standard house & land packages.

Owner Builder and Renovation Considerations

If you're considering owner builder finance, be prepared for additional fees and requirements. Lenders view owner builders as higher risk, which often means higher interest rates and more frequent progress inspections. You'll need to demonstrate your ability to manage plumbers, electricians, and other subcontractors, and pay sub-contractors according to schedule.

For those pursuing a house renovation loan or home improvement loan rather than building from scratch, similar progressive payment principles apply. However, renovation finance may involve different inspection requirements depending on the scope of works.

Specialist Construction Loan Scenarios

Different building scenarios attract varying fee structures:

Project Home Loans: These typically have more standardised fees as the lender is familiar with the builder and floor plans.

Spec Home Finance: Building a speculative home to sell may involve higher fees due to increased lender risk.

Off the Plan Finance: Purchasing an apartment or house off the plan has different fee structures, often with a single settlement rather than progressive drawdowns.

Regardless of your building scenario, you'll usually need to commence building within a set period from the Disclosure Date specified in your loan documents, typically 12 months.

Additional Payments and Building Timeline

Some lenders allow you to make additional payments during construction without penalty, which can reduce your overall interest charges. If you receive unexpected funds or bonuses, applying these to your construction funding can save you money over the building period.

Keep in mind that delays in construction affect your interest costs. If your build takes longer than expected, you'll continue paying interest-only on the drawn amount for an extended period. Having a quality construction team and registered builder who adheres to the progress payment schedule helps minimise these costs.

How Living Home Loans Can Help

At Living Home Loans, we access construction loan options from banks and lenders across Australia. As your local mortgage broker in Kingscliff, we understand the unique aspects of building in this area and can help you compare fee structures across multiple lenders.

We'll review your fixed price building contract, assess your building scenario (whether it's a standard project home loan, custom home finance, or renovation project), and find construction finance that aligns with your budget. We can also explain how the Progressive Payment Schedule works with your specific builder and help you understand exactly what you'll pay at each stage.

Whether you're looking at a land and construction package, already own suitable land, or are planning renovations to your existing home, understanding all fees upfront helps you budget accurately and avoid surprises.

Call one of our team or book an appointment at a time that works for you. We'll walk through your construction finance options and ensure you understand every fee before you commit to building your new home in Kingscliff.