Construction loan fees work differently to standard home loans because you're paying for money released in stages as your home gets built.
Instead of receiving one lump sum, your lender releases funds progressively based on a construction draw schedule, and most lenders charge a Progressive Drawing Fee each time they inspect the build and release another payment. For new migrants building their first home in Australia, these fees can add between $1,000 and $2,500 to your total borrowing costs, depending on how many progress payments your building contract requires.
Progressive Drawing Fees Add Up During Your Build
A Progressive Drawing Fee covers the cost of inspections and administration each time your lender releases funds to your registered builder. Most construction projects involve five to six progress payments as the build moves from slab to frame to completion, and lenders typically charge between $150 and $400 per drawdown. If your construction loan involves six drawdowns at $300 each, you'll pay $1,800 in drawing fees over the build period.
These fees apply whether you're working with a project home builder on a fixed price building contract or building a custom design. The lender needs to verify that construction has reached each stage before releasing the next instalment, which means sending a valuer or inspector to your site. Some lenders include the first drawing fee in your establishment costs, but most charge separately for each subsequent inspection.
Consider someone building a four-bedroom home in Cranbourne who's arranged a land and construction package with a local builder. Their construction funding is structured around five progress payments: base stage, frame stage, lock-up stage, fixing stage, and completion. At $280 per progress inspection, they'll pay $1,400 in drawing fees across eight months of construction. Their broker explained this during the construction loan application so they could factor it into their overall building budget alongside council approval fees and deposit requirements.
Interest Charges Start From First Drawdown
Construction loans only charge interest on the amount drawn down, not on your total approved loan amount. This means your interest costs start low and increase as each progress payment is released to your builder. During the construction phase, most lenders offer interest-only repayment options, so you're only paying interest on the funds released so far rather than making principal and interest payments on the full amount.
If your total building loan is $550,000 but only $110,000 has been drawn for the slab and frame stages, you're paying interest on $110,000 until the next drawdown occurs. Your monthly repayments will increase with each progress payment, reaching their full amount only after the final drawdown at completion when the loan typically converts to a standard home loan.
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Application and Establishment Fees Apply Like Standard Loans
Your construction loan application attracts the same upfront costs as any home loan: an application fee, valuation fee, and establishment fee. Application fees range from zero to around $600 depending on the lender. Valuation fees typically sit between $200 and $400 for residential land. Establishment fees can reach $600 or be waived entirely with certain lenders.
The valuation in a construction scenario covers two components: the current value of your suitable land and the projected value of the completed home based on your council plans and building contract. This dual assessment means your valuation fee might sit at the higher end of the range compared to an established property purchase.
New migrants often ask whether owner builder finance attracts higher fees. Most lenders either don't offer owner builder construction funding or charge a premium in both interest rate and fees because of the higher risk involved when you're not using a licensed builder. If you're planning to act as owner builder and coordinate your own plumbers, electricians, and other sub-contractors, expect your fee structure to differ substantially from standard construction lending.
Fixed Price Contracts Reduce Fee Uncertainty
A fixed price building contract with a registered builder gives you certainty around both the build cost and the loan structure. Your lender can establish the exact number of progress payments required and calculate your total Progressive Drawing Fee upfront. This differs from a cost plus contract where variations during construction can trigger additional drawdowns and therefore extra drawing fees.
Your progress payment schedule should align with your builder's payment terms, which are typically tied to specific construction stages. Most builders in growth areas like Tarneit and Wyndham Vale work to a standard five or six stage payment schedule. Confirming this before you commence building within a set period from the Disclosure Date means you can budget for the exact number of drawing fees rather than estimating.
Some lenders across Australia cap their drawing fees regardless of how many inspections occur, while others charge per inspection without limit. When you access construction loan options from banks and lenders, comparing the drawing fee structure alongside the construction loan interest rate gives you a complete picture of your costs during the build.
Timing Your Application Reduces Holding Costs
You'll start paying interest from the first drawdown, which usually covers your land purchase if you're buying a house and land package. If you already own land and you're waiting for your development application to be finalised before construction starts, timing your loan approval becomes important. Applying too early means paying loan fees and interest before construction begins. Applying too late can delay your build start and risk losing your builder's pricing.
Most construction lenders require your building contract, council approval, and development application to be finalised before they'll make a formal offer. Working with a mortgage broker who understands construction lending helps you coordinate the timing so your loan approval aligns with your builder's schedule without leaving you paying unnecessary interest on your land holding period.
If you're planning new home construction finance and want to understand exactly what you'll pay in fees from application through to completion, call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
What is a Progressive Drawing Fee on a construction loan?
A Progressive Drawing Fee is charged by your lender each time they inspect your build and release the next payment to your builder. Most lenders charge between $150 and $400 per inspection, with most builds requiring five to six inspections from slab to completion.
Do you pay interest on the full loan amount during construction?
No, construction loans only charge interest on the amount drawn down at each stage. Your interest costs start low after the first drawdown and increase with each progress payment until the full amount is drawn at completion.
How many progress payments occur in a typical house build?
Most residential builds involve five to six progress payments tied to construction stages: base, frame, lock-up, fixing, and completion. Your exact number depends on your building contract and lender requirements.
Are construction loan fees higher than standard home loan fees?
Application and establishment fees are similar to standard home loans, but construction loans include additional Progressive Drawing Fees for each inspection during the build. These drawing fees typically add $1,000 to $2,500 to your total costs.
When do construction loan repayments start?
Interest payments begin from the first drawdown, which is usually for your land purchase or base stage. During construction, most lenders offer interest-only payments that increase with each drawdown until the build completes.
