Current at September 2026. Builder contracts and lender construction policies vary; we check the specifics of yours before anything is lodged.
The short version
A construction loan pays your builder in stages as the house goes up, and you pay interest only on the amount drawn so far. It is more paperwork than a standard loan, the approval depends on the builder as much as on you, and the timeline is the thing that catches people. In Armstrong Creek and the new estates around Geelong it is the most common loan we write for first-time builders.
How does a construction loan pay out?
In stages, not as one lump sum. The lender releases a progress payment after each stage is invoiced and inspected, paying the builder directly. Interest is charged only on what has been drawn, so early repayments are small and grow as the build advances.
The lender approves a total amount based on the land value plus the fixed-price building contract. As each stage is finished the builder invoices, the lender’s valuer confirms the work, and the lender pays the builder directly. The usual stages are deposit, base (slab), frame, lock-up, fixing, and completion. You pay interest only on what has been drawn, so repayments start small and grow with the house.
What is the difference between land and build and a house and land package?
Land and build means two contracts and usually two settlements: you buy the block, then engage a builder. A house and land package bundles both through one builder. The deposit timing, the valuation and the loan structure all differ, so decide before you sign anything.
If you buy the land first, that settlement happens as a normal loan and the construction part is added when the building contract is signed. A house and land package bundles them, but is still assessed as two contracts. Either way the lender needs: the signed fixed-price building contract, council-approved plans, the builder’s licence and insurance (domestic building insurance is mandatory in Victoria for work over $16,000), and a schedule of progress payments.
What lenders check that you might not expect
- The builder’s registration and financial standing, and whether the contract is fixed-price
- Whether the site costs and any variations are included or left as “provisional sums”
- The “as if complete” valuation: if it comes in under contract price plus land, you cover the gap
- A completion deadline, usually 12 months from the first draw, after which the loan may need to be restructured
The traps
Variations. Every change after signing is money the lender has not approved. Keep a buffer of 5% to 10% of the contract in cash. Delays. Weather, trades and supply chains blow out timelines; interest keeps accruing on drawn funds and rent keeps being paid. Progress payment disputes. If the valuer will not sign off a stage, the builder does not get paid and work can stop. A good broker is the person on the phone that week. Rate changes mid-build. Most construction loans are variable during the build; you can usually fix after completion.
Grants for new builds
The Victorian First Home Owner Grant of $10,000 applies to new homes, including house and land, up to $750,000. The First Home Guarantee can be used for a house and land package. Stamp duty on a house and land purchase is charged on the land only, which is a significant saving compared with buying established.
What happens when the build is finished?
Once the final progress payment is made and the occupancy certificate is issued, the loan converts to a standard home loan and full principal and interest repayments begin. That is also the natural point to review the rate, because the construction product is rarely the best long-term one.
The loan converts to a standard principal and interest (or interest-only) home loan. This is the moment to review the rate, consider fixing, and set up the offset. It is also when the last 5% to 10% of the contract is paid, so keep the buffer until the keys are handed over and the defects list is signed off.
Where Lend Dreams fits
We choose a lender whose construction policy suits your builder and contract, manage the progress payments, and keep the completion deadline in view. More on construction loans, or talk to us before you sign the building contract, which is the moment most of the avoidable problems are still avoidable.
Sources: State Revenue Office Victoria, First Home Owner Grant; Victorian Building Authority on domestic building insurance; Housing Australia, Home Guarantee Scheme.
Common questions
How does a construction loan pay out?
In progress payments drawn down at set stages of the build, not as one lump sum at settlement. The lender pays the builder directly after each stage is inspected and invoiced, so you only pay interest on what has been drawn so far.
Do I pay full repayments during the build?
Usually not. Most construction loans are interest only during the build, and interest is charged only on the amount drawn down. Full principal and interest repayments start once the final stage is paid and the loan converts to a standard home loan.
What is the difference between land and build and a house and land package?
With land and build you buy the block first and contract a builder separately, which usually means two settlements. A house and land package bundles both with one builder. The lending is structured differently, so it changes how much deposit you need and when.
Want this checked against your own numbers?
A free 15-minute chat with a local Lend Dreams broker. No obligation, no jargon, and we tell you if the answer is “not yet”.