So you want to build your own home: that’s great! Do you know what construction loan documents you’ll need to give to the bank and when you’ll need to have them prepared?

Building can be a complex and emotional process at the best of times but when you throw a construction loan into the mix, it can really test you and your builder’s patience.

However, by following some simple steps, you can make the process a lot simpler.


What construction loan documents do I need to provide?

First things first: you’ll need to get approved for your construction loan.

Apart from looking at your financial situation including your payslips, last 3-6 months savings, your most recent tax return, and your deposit size, you’ll need to provide your bank with the following:

A building contract

This will detail things like the building stages, drawdown schedule, how long construction should take and the final price of the build.

Does the bank need a signed contract?

Trying to get approved for a construction loan when building a home is a classic example of putting the cart before the horse: you need to provide the bank with a contract in order to get approved for finance but what happens if your application is declined? Well, you’re left up the proverbial creek.

We recommend that you don’t sign a building contract unless it has a finance clause which allows you (at least) 3 weeks to organise your construction loan.

If the contract doesn’t have a clause, you can either ask for one to be included or simply get a draft copy a contract to provide to the bank. Most banks will accept this and, once you’re approved, you can then sign the final contract.

Check out this example building contract.

What if I just have a tender at the moment?

Some banks will do a loan approval based on a tender alone, which is an unofficial document that provides some basic details of the building costs and what final product the builder will actually be delivering.

The Commonwealth Bank is one such bank that only requires a tender for a construction loan pre-approval.

The problem is that between the tender and actually finalising the contract with the builder, many changes will likely be made.

For example, a soil and contour test can cost upwards of $5,000 while not all building quotes include flooring in their quote.

If the contract is different to the tender, the bank has to revalue the property and, therefore, it delays the construction loan process.

So if you just have a tender, we recommend that you get a pre-approval first.

Not sure what a tender is? Check out this example.

Building plans

The building plans don’t have to be council-approved at this point. It just gives the valuer an idea of the nature of the property that you’re building.

Check out this example of a development application when it comes time for you to apply with council.

Specifications

Building specifications give the bank an idea of the quality of the materials, appliances and workmanship involved in the build.

For example, are you going to have timber floors or tiles? Are you going to have a split-system air conditioning system? Are you choosing a gas water heater over a hot water system?

The quality of the build can have a huge impact on the final valuation and, ultimately, your borrowing power.

Although you’ll want to do everything to get your construction loan approved, you should be upfront with the full extent of the build because if the costs of construction end up blowing out due to changes you make to the building plans, you’ll need to make up the shortfall with your own funds.

Quotes for additional work

Just in case you haven’t read the building contract fine print carefully, not everything is included in the construction so it’s important to provide quotes for these additional works upfront.

These additional works include:

  • Swimming pools
  • Sheds
  • Landscaping and retaining walls
  • Power poles
  • Driveways

A quote is generally all you’ll need to provide since these works don’t need council approval. Although it varies, these construction jobs aren’t permanent structures and are often quite cheap to build.

If you provide quotes, you can borrow to finance these additional costs. If you don’t, you’ll likely need to fund these costs yourself.

Be careful as some lenders will only release money for the additional work once the main house is completed. This may not suit your construction schedule so, in some cases, we may need to switch lenders.

Do you need help with getting approved for a construction loan?

Give us call on 1300 889 743 or complete our free assessment form and let us know what you’re planning to build.

We know exactly what documents the bank is after in order for them to assess your application and get the ball rolling.


What construction loan documents do I need to provide prior to the first drawdown?

Unlike the structure of a standard home loan, construction loans are progressively drawn-down. This means that you draw down the loan (or increase your borrowing) as needed to pay for the construction progress payments.

In order to release the first lot of funds to the builder, you’ll need to provide:

  • A signed building contract: This means the finalised building contract should be signed and dated by you and the builder.
  • A Quantity Surveyor report: Depending on the cost of the building project (generally required for properties valued at more than $1 million), the lenders may require that a quantity surveyor report be included in the contract.
  • Council-approved plans: Depending on your state and council, council approval can take anywhere between 42-100 days so it’s good to get on this sooner rather than later.
  • Evidence of builders insurance: This will vary between states but typically the builder will need to have Public Liability Insurance and Home Warranty Insurance.

Once you provide these documents, the bank will give you the authority to proceed.

Don’t start construction until the bank gives you the authority to proceed!

Banks don’t like to finance something that’s partially-built so don’t start construction until you receive that authority letter.


5 Golden tips

If you were to take away five tips from this guide, these would be it:

  • Make sure you choose the right builder: Check out the Choosing A Builder page tips.
  • Provide all construction loan documents upfront: Give the bank everything in one go otherwise there’ll likely be a lot of going backwards and forwards and delays, particularly with the valuation.
  • Make sure you provide the final version: If you can’t provide the bank with the finalised tender and plan to make further changes to the build, just get a pre-approval not a formal approval. The reason being is that any time the cost of construction changes, the bank needs to send the valuer out to the property again and reassess the valuation. That’s even if the costs change by $100!
  • Be careful of overcapitalising: This is where you spend a lot of money to essentially build the best house in the street. There’s nothing wrong with that in itself but just know the banks will undervalue it and won’t lend you the amount you need to finance construction.
  • First Home Buyers Grant (FHOG): If you’re eligible for the grant, you should apply for it at the same time you apply for your construction loan.

You can also check out the construction loan tips page for more tips and additional information on building loans.


Do you need a construction loan?

We’re construction loan specialists that can turn the complexities of the process into a smooth and stress-free experience for you.

Call us on 1300 889 743 or complete this easy online enquiry form today.

  • JD.

    Hi, I checked out your page about choosing a builder and now this one as I’m actually ready to get a construction loan. This page is pretty helpful but I actually wanted to also learn about the different amounts that I’ll need to pay to the builder at different stages of construction. Do you guys have a page on this or a blog or something?

  • Hi JD.

    We’re glad to see that you’re finding our pages helpful. Yes, we do have a page about the stages of construction. You can check it out here: https://www.homeloanexperts.com.au/home-loan-articles/stages-of-construction/

    Do tell us if there’s anything more you’d like to know.

  • Jess

    Hi, I’m planning to construct a 2nd property at the back of an existing property (i.e 2 properties on 1 title). I will rent my existing property and move into the newly constructed property. So I met with this builder and they gave me a building contract but the finance clause is not applicable, should this be a concern? :(

  • Hi Jess
    Just ask them to add a finance clause of 14 days. That should be fine.

  • Franz

    Greetings HLE

    I have a tender and planning to apply for pre-approval by presenting this. Do the banks pre-approve an amount based on the tender and amount on the land or are they flexible enough to pre-approve based on the maximum loan amount they can offer given the circumstances (i.e. an amount more than the amount needed for house & land)?

  • Greetings Franz
    For a pre-approval you don’t need a tender at all. So you can just go for a maximum.
    Just be careful as you want to make sure you have the final price with no changes made before you apply for formal approval. Otherwise it causes big delays. This page has some info on it https://www.homeloanexperts.com.au/home-loan-articles/construction-loan-tips/

  • Daxter

    Hi home loan experts,
    Like JD, I find your pages pretty helpful. I just want to know one thing – I’m building a house in NT so how much will I need to pay at each stage of the progress payment?

  • Thanks for your comment, Daxter. Unlike in other states, things are a little different for Northern Territory. Here’s how much you’ll need to pay at each progress payment stage:

    The deposit – No more than 5%
    The slab or base stage – 10%
    Frame stage – 20%
    Enclosed stage – 25%
    Fixing stage – 30%
    Practical completion stage – 7%
    Final completion – 3%

  • Zook

    Does making small changes here and there on the building contract impact my construction loan in any way later?

  • Actually, if you make an amendment with the builder and the contract price changes by just $100, the lender may need to reassess the loan all over again. You can avoid this though by making sure that the building contract you provide the lender with is the final complete contract. If you make any small changes then try to pay for them from your own funds, or have the builder reimburse you for any discounts after construction is complete. For any large changes, you’ll need to notify the bank and then allow up to one month for the bank to reassess your loan. If you keep making changes then you can expect to have significant delays.

  • Roth

    I have been holding on to a big piece of land in relatively small suburb for a while and am thinking of building around 4 medium sized buildings. Is it possible to get all of this financed?

  • Hi Roth,
    There are lenders that can accept this but note that construction of 4 properties usually fits into commercial lending. This means higher interest rates than for residential loans. If you’re constructing up to 2 properties then it may be considered residential. So it is possible to finance them but it will also depend on your personal financial situation and which lender you apply with.

  • Caryn

    Hi, we’ve been approved and have run into a snag. The bank signed off on having verified council approved plans and paid the 5% deposit to the builder but we don’t have building approval. This is also stated on the builder invoice – that he was giving us the invoice but still had to do a few things before submitting to council. We understood that even by signing the release authority that it wouldn’t be paid until he supplied final council approved plans. The builder has now decided he can’t build our house, no longer has our money and the bank is saying they quite often advance so it’s not their issue, we signed the release. We have to come up with the money (no borrowing) in order to get moving with another builder.
    Why would a bank sign off that they had all necessary documents and pay in advance? All paperwork re loan states otherwise. Do we have any recourse? Thanks.

  • Hi Caryn,
    It’s hard to say as this is a legal issue so you may need to seek a lawyer’s advice or lodge a formal complaint with the bank. In my experience if you have signed a request for them to pay the invoice and they paid it despite not having all of the required docs then they will just say they are following your request. Unfortunately I am not sure that there is any recourse against the bank. You may want to contact fair trading re the builder keeping your deposit, I am not sure if that will be successful or not.

  • Caryn

    Fast reply! We’re dealing with a lawyer regarding the builder not returning the deposit. As for the bank, they know I’m not happy, I am concerned that if I need to lodge with the ombudsman that it will be the end of our loan. Theyve told us we need to replace the money and they’ll reassess the loan re valuation etc. It’s difficult.

  • Yes when you find a new builder they’ll reassess your loan at that time. You’ll need to replace the 5%. Worst case scenario you may need to get a personal loan to cover it. If your loan was for 90% or less of the property value + build cost then you may be able to increase it to 95% instead of coming up with more funds. You’d have to discuss those options with your mortgage broker (or bank if you went directly to them).