A construction loan doesn't hand you the money at settlement. It releases funds in stages as the build reaches defined milestones, and you generally pay interest only on what has been drawn so far.
That structure is sensible, but it has consequences for your cash flow, your contract, and your timeline that are worth understanding before you sign anything with a builder.
Funds are typically released across defined stages – commonly slab, frame, lock-up, fit-out and completion. The lender usually requires an inspection or valuation before releasing each drawdown.
Two practical consequences. First, your repayments increase as more of the loan is drawn, so your costs ramp through the build rather than starting at full rate. Second, if you're renting while you build, you're carrying both rent and a growing loan repayment at the same time. That overlap is the part people underestimate.
Lenders scrutinise building contracts closely. A fixed-price contract from a licensed builder is the most straightforward path. Cost-plus arrangements, owner-builder projects and unusual construction methods all narrow the field of lenders willing to participate.
It's worth having the finance conversation before signing with a builder, not after. Changing builders because your lender won't accept the contract is a painful and avoidable problem.
Building is often where first home owner grants actually apply, since many state grants are limited to new homes and house-and-land packages rather than established properties. If you're building your first home, check what's available in your state.
Generally no. You usually pay interest only on the amount drawn down so far, which increases as the build progresses. Full principal and interest repayments typically begin after completion.
Construction loans have a limit on how long the build can take, and extensions are possible but not automatic. Delays can also mean a longer period of paying both rent and loan repayments, so it's worth building a buffer into your planning.
Some lenders will consider it, but fewer than for a standard fixed-price contract, and requirements are stricter. It's workable, but the lender shortlist is smaller and worth establishing early.
