In short: A construction loan in Melbourne funds a new build in stages rather than as one lump sum. The lender releases progress payments to your builder at base, frame, lock-up, fixing and completion, and you pay interest only on what has been drawn until the home is finished. GNT Finance arranges construction loans for house-and-land buyers, knockdown-rebuilds and renovations, valued on the finished home rather than the vacant block.
Building gives you a home designed around your family, a seven-year builder's warranty, and in Victoria, stamp duty on the land alone rather than the finished house. It also introduces a loan structure that trips up plenty of first-time builders: money is released in tranches against invoices, the lender's valuer inspects before each release, and your repayments climb as the build progresses. GNT Finance, based in Mickleham in the middle of Melbourne's fastest-growing building corridor, arranges construction finance every week and can walk you through it before you sign anything with a builder.
Who needs a construction loan
- Buyers of a house-and-land package in Donnybrook, Kalkallo, Wollert or Mickleham, where the land settles first and the build follows. See house and land package finance for the two-contract detail.
- Owners of an established block in Greenvale, Bundoora or Sunbury planning a knockdown-rebuild.
- Homeowners doing a major structural renovation or second-storey extension worth more than roughly $150,000, which most lenders treat as construction rather than a top-up.
- Owner-builders, though only a handful of lenders fund these and usually at a lower loan-to-value ratio.
The progress-payment schedule
Victorian domestic building contracts over $10,000 follow a regulated payment structure. For a fixed-price contract the standard percentages are:
| Stage | Share of contract price | What the valuer checks before release |
|---|---|---|
| Deposit | 5% | Signed contract, building permit, builder's insurance certificate |
| Base | 10% | Slab poured or stumps and bearers in place |
| Frame | 15% | Wall and roof frames erected and inspected |
| Lock-up | 35% | External walls, roof, windows and external doors fitted |
| Fixing | 25% | Internal cladding, cabinetry, plumbing and electrical fit-off done |
| Completion | 10% | Occupancy permit issued, final inspection passed |
The lender pays the builder directly at each stage after you approve the invoice and their valuer or inspector confirms the work is done. Your own contribution (deposit and any shortfall) is used first, and the loan is drawn only after that is exhausted. Read our guide to construction loan progress payments for what happens when a stage is disputed.
How GNT Finance handles a construction loan
- Pre-approval on land plus build. Before you sign a land contract, we establish how much you can borrow for the combined project so the block and the build both fit.
- Builder paperwork. Once you have a fixed-price contract, council-approved plans, specifications and the builder's domestic building insurance certificate, we submit them with your application.
- As-if-complete valuation. The lender's valuer assesses the land and the plans and values the finished home. The loan-to-value ratio is calculated on that figure, not on the vacant land.
- Formal approval and land settlement. If the land has not settled, the lender funds it first. Interest-only repayments begin on the land portion.
- Progress draws. At each stage you sign the builder's invoice, we lodge it, the inspection is booked, and the lender pays within a few days.
- Completion and conversion. After the final payment the loan rolls to principal and interest (or your chosen structure) and you can add an offset account, fix part of the balance, or split.
Eligibility and what the lender will ask for
Construction lending has all the usual income and credit tests plus a layer of building documentation. Lenders typically want:
- A fixed-price building contract with a registered builder. Cost-plus contracts are rarely accepted.
- A building permit and council-stamped plans, or evidence they are imminent.
- The builder's domestic building insurance certificate for your project.
- A detailed specification and inclusions list, plus quotes for any owner-supplied items such as landscaping or fencing if they are to be funded.
- Deposit of 10% to 20% of the total cost. Some lenders go to 95% with lenders mortgage insurance, and first home buyers can use the First Home Guarantee for a build under the $950,000 Melbourne cap.
- Standard income evidence: payslips, tax returns for self-employed applicants, bank statements and identification, as set out in our documents checklist.
A worked example: land and build in Wollert
Rohan and Meera buy a titled 400 square metre block in Wollert for $380,000 and sign a fixed-price contract for a four-bedroom home at $420,000. Total project cost: $800,000. They have $160,000 in savings, so they borrow $640,000 at 80% of the as-if-complete valuation and avoid lenders mortgage insurance.
Stamp duty is charged on the land only. As owner-occupiers in the $130,001 to $440,000 band, duty on $380,000 is $2,870 plus 5% of $250,000, about $15,370. Check the stamp duty calculator for your own numbers.
For illustration, at 6.00% p.a. interest-only, here is how the repayments step up as each stage is drawn:
| Point in the build | Loan drawn | Monthly interest-only repayment |
|---|---|---|
| Land settlement | $220,000 | $1,100 |
| After deposit and base stage | $283,000 | $1,415 |
| After frame | $346,000 | $1,730 |
| After lock-up | $493,000 | $2,465 |
| After fixing | $598,000 | $2,990 |
| Completion (converts to P&I over 30 years) | $640,000 | $3,837 |
While the build runs they are also paying rent in Epping, so we made sure their budget covered rent plus the growing interest bill for the whole 12-month build. Compare structures in the interest-only vs principal and interest calculator.
Costs beyond the contract price
| Cost | Typical amount | Notes |
|---|---|---|
| Lender application fee | $0 – $800 | Some waive for package customers |
| As-if-complete valuation | $300 – $700 | Occasionally free |
| Progress inspection fees | $100 – $250 per stage | Four to five inspections |
| Site costs and rock removal | $10,000 – $40,000 | Confirm they are fixed in the contract |
| Variations | Client-driven | Not funded by the lender unless pre-approved; pay from savings |
| Landscaping, driveway, fencing, blinds | $15,000 – $40,000 | Often excluded from the base contract |
| Rent during construction | 9 – 15 months | Budget for it alongside interest |
Our home-loan service is at no cost to you in most cases; the lender pays us. Any exception is disclosed before you proceed.
Where builds go wrong financially
Signing the land contract before checking the build budget. The land may be affordable but the total project may not service. Get the combined pre-approval first.
Under-funding the extras. Builders' base prices often exclude site costs, landscaping, driveways and window coverings. If these are not in the fixed-price contract, the lender will not release funds for them.
Choosing a builder that is not registered or insured. No domestic building insurance certificate means no loan. Check registration with the Victorian Building Authority.
Skipping independent inspections. The lender's valuer confirms the stage is complete, not that the work is good. An independent building inspector at frame and lock-up is money well spent; see building and pest inspection rights.
Why use a broker for construction finance
Construction policy differs sharply between lenders: some refuse owner-supplied items, some insist on their own inspector at every stage, some fund knockdown-rebuilds only after demolition, and their maximum loan-to-value ratios for builds vary from 80% to 95%. A broker who does this regularly knows which lender fits your builder, your block and your timeline. GNT Finance also coordinates the paperwork between you, the builder and the lender so that stage payments are not held up by a missing invoice or an unbooked inspection, which is where most delays actually come from.
Gorakh Timilsina spent years as a senior credit officer assessing construction applications before founding GNT Finance, so the file is prepared the way an assessor wants to see it. We serve builders across Melbourne's north in English, Nepali and Hindi, from Mickleham and Wollert to Sunbury and Mernda.
Frequently asked questions
Do I pay interest on the whole loan from the start?
No. You pay interest only on the amount drawn. At land settlement that is the land portion; the balance grows as each progress payment is released. Repayments during construction are usually interest-only and convert to principal and interest at completion. This keeps costs lower while you may also be paying rent, but budget for the final repayment from day one.
Can I finance a knockdown-rebuild?
Yes. The lender values your block as vacant land plus the new home on completion. You will need demolition quotes, a fixed-price building contract and confirmation of where you will live during the build. Some lenders require your existing loan to be refinanced into the construction facility. Equity in the land often covers most or all of the deposit.
Can I use the First Home Guarantee or FHOG for a build?
Yes, both. The First Home Guarantee lets eligible first home buyers build with a 5% deposit and no lenders mortgage insurance, provided land plus build sits under the $950,000 Melbourne cap. The $10,000 First Home Owner Grant applies to new homes valued up to $750,000 and is usually paid at the base stage. Read our First Home Owner Grant guide.
What happens if the builder goes into liquidation mid-build?
Your builder's domestic building insurance covers loss of deposit and incomplete work up to policy limits, which is why lenders will not fund without it. The loan does not disappear; interest continues on drawn funds while a replacement builder is engaged. Keeping a contingency of 5% to 10% of the contract in savings makes this scenario survivable.
How long does construction loan approval take?
With a signed fixed-price contract, plans, permit and insurance certificate in hand, formal approval typically takes two to three weeks, most of it waiting on the as-if-complete valuation. Pre-approval on your income can be done earlier, before you have chosen a builder, so that land settlement is not delayed.
Talk to GNT Finance
If you are weighing up a block, a builder or a rebuild, send us the numbers and we will show you what the whole project looks like month by month. Book a free consultation or call Gorakh on 0426 403 703.
Written by Gorakh Timilsina
Founder, CEO & Senior Mortgage Consultant at GNT Finance. Gorakh started as a broker assistant, spent years as a senior credit officer assessing loan applications, and now helps Melbourne families get the right loan approved. English, Nepali and Hindi spoken.