A construction loan is released in stages against your building contract, not handed over as one lump sum. The lender pays the builder progressively as work is completed, generally charges interest only on funds actually drawn, and often requires your own contribution to be used before its funds start flowing.
The stages, in order
Land / existing security
What happensLand settles or land you already own is confirmed as security.
Useful evidenceContract or title position.
Finance effectSets the land debt, equity and security position.
Building contract
What happensFixed-price contract, specifications and payment schedule are reviewed.
Useful evidenceSigned building contract and specifications.
Finance effectConfirms the build cost and progress-payment structure.
Plans and approvals
What happensRequired plans, permits and builder documents are finalised.
Useful evidenceApproved plans and permits where required.
Finance effectFunding normally cannot start until required pre-draw items are complete.
As-complete valuation
What happensThe completed property value is assessed.
Useful evidenceValuation ordered by the lender.
Finance effectHelps determine lending value and construction LVR.
Formal approval
What happensLoan conditions and construction conditions are confirmed.
Useful evidenceSigned loan documents and outstanding conditions.
Finance effectThe facility becomes ready once remaining conditions are satisfied.
Client contribution
What happensRequired cash or equity contribution is used as agreed.
Useful evidenceEvidence of available funds.
Finance effectTiming can affect when lender funds begin.
Base / slab
What happensFoundations, footings and slab or flooring stage are completed.
Useful evidenceBuilder progress claim.
Finance effectAn early draw increases the amount on which interest may be charged.
Frame
What happensWall and roof framing is completed.
Useful evidenceBuilder progress claim.
Finance effectA further progress draw is released subject to the lender process.
Lock-up / enclosed
What happensRoof, walls, windows and external doors are completed.
Useful evidenceProgress claim and any required inspection.
Finance effectAnother progress draw, subject to the lender process.
Fixing / fit-out
What happensInternal cabinetry, fixtures and finishes progress.
Useful evidenceProgress claim.
Finance effectMost of the facility may be drawn by the later stages.
Practical completion
What happensThe contracted work is substantially complete.
Useful evidenceCompletion documents, inspection and certificates.
Finance effectFinal conditions are checked before the last draw.
Final draw / ongoing loan
What happensFinal payment is released after completion requirements are satisfied.
Useful evidenceFinal lender and builder requirements.
Finance effectThe construction facility moves to the agreed ongoing loan structure.
General information only. Your building contract, lender conditions and construction documents determine the actual stages and payment requirements.
Before the first draw
The lender wants to see your land position (owned outright, or being purchased as part of the deal), a fixed-price building contract, council-approved plans and specifications, your builder’s licensing and insurance details, and a total project cost that covers everything, not just the headline build price. Many policies also require an “as-if-complete” valuation: the valuer assesses what the finished property should be worth once the approved work is done, not just today’s land value.
Your own contribution comes first
Several lender requirements explicitly require your deposit, out-of-contract items and any required contingency to be used before the lender’s build funds are released. This is why a construction Funds Position calculation needs to work differently from a standard purchase, your cash contribution isn’t just a number at settlement, it can be a condition of when the lender starts funding.
What to prepare
- Fixed-price building contract with a clear progress-payment schedule
- Council-approved plans and specifications
- Evidence of your land position, owned, or being purchased as part of the transaction
- A contingency buffer, separate from the approved loan, for variations and cost movements
Next step: see how interest builds up during construction with the Construction draw interest tool, and work through the full Construction guide.