How Construction Loans Work: Process, Timeline and More.

What Is a Construction Loan?

A construction loan is a short-term, specialised loan designed to support the cost of building a new home or undertaking major renovations. Unlike a standard home loan that provides a lump sum upfront, construction loans are paid out in stages called progress payments that align with key milestones in your build, such as laying the slab, framing, and reaching lock-up.

During the construction phase, you generally only make interest payments, helping you manage your cash flow while your home takes shape. These loans offer greater flexibility and peace of mind reducing the risk of funding incomplete or poor-quality work by releasing funds as each stage is completed to satisfaction.

It’s a smart way to stay financially in control while building your dream home and one that Eden Brae Homes can help you understand with clarity and confidence.

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?

Understanding the benefits and risks to help you make an informed decision.

Construction loans offer tailored support for those building a new home, with benefits that suit homeowners who value flexibility and control. But like any financial commitment, they come with a few risks to consider and knowing both sides is key to deciding if it’s the right fit for your journey.

With staged payments aligned to construction milestones, these loans help manage cash flow and protect your investment as your home takes shape. If you're looking for a structured way to fund your build, a construction loan might be ideal. Just keep in mind that careful planning is essential including buffers for delays, cost changes, and approval timeframes.

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.