The clearest way to understand Construction Loan Fees

Understanding Construction Loan Fees in Croydon

Building your dream home in Croydon is an exciting journey, but understanding construction loan fees can feel overwhelming. Whether you're planning a new build, major home renovations, or buying off the plan, knowing what fees to expect helps you budget properly and avoid surprises.

Construction loans work differently from standard home loans. They only charge interest on the amount drawn down during various stages of the project, which means you're not paying interest on the full loan amount from day one. This progressive drawdown system aligns with construction milestones, making it more manageable during the building phase.

Progressive Drawing Fees Explained

One of the most common fees you'll encounter is the Progressive Drawing Fee. This fee applies each time you request funds for construction milestones. Banks and lenders typically charge between $300 to $800 per drawdown, depending on the lender and loan amount.

Here's how the progressive drawdown process typically works:

• Initial deposit and land purchase
• Foundation and slab completion
• Frame completion
• Lock-up stage (roof and walls complete)
• Fixing stage (plumbing, electrical, flooring)
• Practical completion

Each stage requires an inspection and valuation before funds are released to pay sub-contractors, including plumbers and electricians working on your project.

Valuation and Inspection Costs

Construction loans require an 'as if complete' valuation at the beginning, which estimates your property's value once construction is finished. This typically costs between $400 to $800. Additionally, progress inspections at each stage may incur fees of $200 to $500 per visit.

These inspections ensure work meets Australian building standards and matches your council plans and permits before releasing the next instalment. Your registered builder will coordinate with inspectors to verify completion of each construction milestone.

Application and Establishment Fees

Applying for a loan involves establishment fees, which can range from $600 to $1,500. Some lenders waive these fees as part of promotional offers, so it's worth exploring different options. The streamlined application process varies between lenders, and having the right documentation ready can speed things up.

You'll need to provide:

• Council-approved building plans and permits
• Fixed price contracts with your builder
• Progressive Payment Schedule
• Evidence of suitable land ownership or purchase contract
• Financial documents for loan assessment

Interest Rate Considerations

During construction, most lenders offer interest-only repayment options on the amount drawn down. Interest rates for construction loans are often slightly higher than standard home loans, typically 0.25% to 0.75% above standard variable rates.

Once construction completes, your loan converts to a standard home loan with principal and interest repayments. The interest rate may adjust at this point, so discuss this transition with your mortgage broker early in the process.

Additional Costs to Consider

Beyond standard construction loan fees, budget for these potential additional payments:

• Development application fees (if required)
• Building insurance during construction
• Legal fees for contracts and settlements
• Council inspections and compliance certificates
• Costs to demolish existing property (if applicable)
• Out of Contract Items not included in your building contract

These costs vary significantly depending on your location, local council restrictions, and project complexity. Properties in established areas like Croydon may have specific council regulations affecting costs.

Making Your Construction Loan Work

To make a plan that works for your situation, consider your ideal location, price range, and building timeline. You'll typically need to commence building within a set period from the Disclosure Date, usually six to twelve months.

Construction loans can fund various projects:

• New builds on vacant land
• House & land packages
• Major renovations (sometimes called a home improvement loan)
• Knockdown rebuilds

Working with experienced professionals helps you access Construction Loan options from banks and lenders across Australia. As your local mortgage broker in Croydon, we understand the specific requirements and can guide you through the process.

Understanding construction loan fees upfront helps you budget accurately and avoid unexpected costs during your building journey. The key is finding the right lender structure that matches your project timeline and financial situation.

Ready to explore your construction loan options? Call one of our team or book an appointment at a time that works for you.