How Do Construction Loans Work: Process, Timeline, & More

Building a new home lets you create a space that fits your lifestyle and needs. But making your plans a reality takes more than just a good design and a skilled builder; you need solid financial planning too. Getting the right financing is key to keeping your project on track and avoiding expensive delays. One of the most popular options for new builds is a construction loan. These loans are made to support the different stages and costs of building, giving you the flexibility and control you need as your home comes together. Before you take the plunge, we’re going to take a closer look at what is a construction loan, the construction loan process and the construction loan timeline, the pros and cons of a construction loan, and tips for managing your construction loan.  

What is a Construction Loan?

A construction loan is a short-term, specialised loan that helps cover the costs of building a new home or making major renovations. Unlike a regular home loan that gives a lump sum upfront, a construction loan is paid out in stages, known as progress payments, as the build reaches different milestones like laying the slab, framing, and lock-up. During the construction period, these loans usually require only interest payments, which helps borrowers manage their cash flow while their home is being built. A construction loan also helps protect both the borrower and the lender by reducing the risk of funding incomplete or poor-quality work.

The Construction Loan Process and Construction Loan Timeline: A Step-by-Step Guide

Construction loans are tailored to suit the progress of your building project, making them quite different from regular home loans. Here’s a simple rundown of the typical construction loan process and when funds are released:

Deposit to the builder

Before construction starts on your floor plans, you usually need to pay a deposit to the builder. This amount isn’t covered by the construction loan and has to come from your own funds. It’s generally about 5–10% of the total build cost, depending on your contract.

Laying the slab

The first official payment happens once the slab or base is done. This includes essential work like earthmoving, plumbing under the slab, and pouring concrete. At this point, the bank will check the completed work before releasing the funds.

Framing

The next payment is made once the framing of the house is up. This covers the construction of wall frames, roof trusses, and windows. It’s an important milestone, as it shows the structure and shape of your home.

Lockup

During the lockup stage, external doors and windows are fitted, allowing the house to be “locked up.” The structure is now safe from the weather, and another portion of the loan is released after inspection.

Fitout

This phase involves the internal work—plastering, cabinetry, tiling, electrical fittings, and painting. It’s when your house starts looking like a finished home. A progress payment is made as these installations happen.

Practical completion

The final payment is made once the builder completes all contracted work and the home is ready for you to move in. At this stage, the bank will usually perform a final valuation or inspection to ensure everything has been finished to a good standard before releasing the last funds.

Keep in mind that construction timelines can differ from one project to another. Delays in council approvals, bad weather, labour shortages, and unexpected costs can affect how quickly each stage moves along. It’s important to work closely with your lender and builder to keep everything on track.

Is a Construction Loan Right for Me: Benefits and Risks of Construction Loans

Construction loans have special benefits for those building a new home, but they also come with some risks to think about. Just like any financial choice, looking at the good and the bad will help you figure out if it’s the right option for you.

Pros of Construction Loans

Flexible and staggered payments

Construction loans release funds in stages, matching each phase of the build. This way, you're only paying for work that's been done, which helps with budgeting and lowers the chance of overpaying early on.

Save on interest

You only pay interest on the amount of the loan that’s been used, so your repayments during construction are usually lower than a standard home loan. This can ease financial stress while you're still covering rent or other costs during the build.

Greater control over the build

A construction loan gives you more say during the project. Progress payments are released only after each stage is checked and approved, ensuring quality control and keeping your builder accountable.

Tailored for new builds

Unlike personal loans or traditional home loans, construction loans are designed for new builds and major renovations. This means lenders often offer special support for building projects.

Cons of Construction Loans

No guarantees on construction timeline

Delays from weather, labour shortages, or approvals can slow down your build. Since construction loans are time-limited, these delays can affect your loan term or increase your interest costs during the construction.

Stricter lending requirements

Construction loans usually need more paperwork, like detailed building contracts, council approvals, and plans. Lenders might also ask for a bigger deposit or set tighter limits on how much you can borrow compared to standard home loans.

Higher initial costs

Some banks charge more for construction loans, like valuation fees at each progress stage or extra setup costs. These can quickly add up and should be included in your overall budget.

Taking a close look at the pros and cons can help you decide if a construction loan fits with your financial goals and timeline. If you want flexibility and more control over your home’s build, it could be a great choice—but make sure to plan for the unexpected.

Tips for Managing Your Construction Loan

Managing a construction loan isn't just about getting the money—it's about planning, coordinating, and keeping in touch during the building process. Here are some handy tips to help you manage your loan and steer clear of common problems.

Work with a trusted builder

Pick a reputable, licenced builder with a good track record. A reliable builder not only does quality work but also keeps to the schedule and communicates well, which helps prevent delays and extra costs.

Plan with delays in mind

Things like weather, approvals, and supply issues can affect timelines. Allow some extra time and money in your budget to reduce stress if things don’t go as planned.

Get pre-approval before finalising your build

Get loan pre-approval before signing your building contract. This gives you a clear idea of how much you can borrow and helps avoid costly changes or delays due to money issues.

Understand your loan’s progress payment structure

Know how and when your lender will release funds. Ensure your builder aligns their invoices with these stages to prevent funding gaps that can slow down your project.

Keep detailed records

Keep copies of all contracts, invoices, approvals, and communication with your builder and lender. Good records help you track your spending and sort out any problems if they come up.

Stay in regular contact with your lender

Keep your lender updated throughout the build, especially if there are delays or changes. This helps them adjust progress payments or reassess valuations if necessary.

By staying organised, planning ahead, and communicating well with your builder and lender, you’ll be in a great spot to manage your construction loan smoothly from start to finish.

Secure Your Dream Home With Eden Brae

Learning how construction loans work is the first step in building with confidence and avoiding costly surprises down the line. With the right funding, reliable professionals, and some good planning, you can turn your dream into a lovely reality.

At Eden Brae, we’re here to help you every step of the way. Our friendly team can explain your construction loan options, suggest trustworthy lenders, and work closely with your bank to make sure payments go smoothly during the build.

Ready to move forward with a beautiful new home design?

Contact Eden Brae today or visit a display home for inspiration, and let’s make your dream home happen!