Last updated: May 2026 · Reading time: 13 minutes
The Quick Version — Construction Loans for First Home Buyers in 90 Seconds
Building your first home instead of buying an existing one unlocks more government money than any other path into the market in 2026. Most first home buyers don't realise this until they've already signed for an established property.
Here's the short version of what a construction loan is and what's at stake:
- A construction loan is a specialised home loan that releases money in stages as your home is built, not all at once like a standard home loan. You only pay interest on what's been drawn down so far.
- Five build stages, five progress payments. Slab → Frame → Lockup → Fit-out → Completion. Each stage is inspected and signed off before the next payment is released.
- You'll typically need 5–20% deposit. With the First Home Guarantee (FHBG), as little as 5% with no Lenders Mortgage Insurance.
- Interest rates run 0.10–0.50% higher than a standard home loan during the build, then drop back at completion when the loan converts to principal-and-interest.
- The grant stack is the real prize for first home buyers: First Home Owner Grant (up to $30K depending on state), First Home Guarantee (5% deposit, no LMI), state stamp duty exemptions for new builds, and Help to Buy (federal shared equity) all stack together for new construction.
- Most lenders won't lend to owner-builders. If you're not using a registered builder with a fixed-price contract, your options shrink dramatically.
If you're a first home buyer weighing build vs. buy, the grants alone can be worth $40K–$80K extra in your pocket on a new build. Calculate what you can afford → then match with a construction-loan specialist broker who'll know which lender and grant combination works for your state.
This guide is general information only, not financial advice. Eligibility for grants and loan products depends on your circumstances and the state you're buying in.
How Construction Loans Actually Work
A construction loan is fundamentally different from the home loan most Australians know about.
When you buy an existing home, your lender hands the seller's solicitor a single lump sum on settlement day. The full loan balance starts charging interest from day one.
When you build a new home, the lender refuses to do that. Building is too risky to fund up front — the home doesn't exist yet, the builder might not finish, the build might come in over budget, the property might not value up at completion.
Instead, your lender breaks the loan into five progress payments, releases each one only after that build stage is independently inspected and signed off, and only charges interest on the cumulative balance drawn down so far.
That last bit is the part most first home buyers don't grasp until they're holding their first invoice. If you have a $500,000 construction loan and only $50,000 has been drawn for the slab, you're paying interest on $50,000 — not $500,000. By month six, you might be paying interest on $250,000. By the time the home is completed and the final progress payment is released, you're paying interest on the full balance.
This drip-feed structure is the single biggest reason construction loans exist. It makes building affordable for ordinary buyers, because your interest costs ramp up gradually instead of hitting you with a full mortgage from day one while you're still paying rent on your current place.
During the build, your repayments are interest-only. At completion, the loan converts to a standard principal-and-interest home loan over 25 or 30 years, and you start paying down the balance the same way any homeowner does.
That's the whole shape of it. Everything else — deposits, rates, grants, stages, paperwork — is detail.
Construction Loan vs Standard Home Loan
The two products share a name and not much else. A standard home loan funds the purchase of a home that already exists. A construction loan funds the building of one that doesn't yet. Every mechanical difference flows from that single fact.
| Feature | Standard home loan | Construction loan |
|---|---|---|
| How funds are released | Single lump sum at settlement | Five progress payments, one per build stage |
| Interest charged on | Full loan balance from day one | Cumulative drawn balance only |
| Repayments during loan term | Principal and interest from day one | Interest-only during build, P&I after completion |
| Typical interest rate (vs standard variable) | Lender's standard variable rate | 0.10–0.50% premium during build, reverts at completion |
| Inspections required | One valuation at application | One valuation per stage drawdown |
| Application paperwork | Income, debts, deposit, contract of sale | All of the above plus fixed-price contract, plans, builder details, schedule |
| Settlement timeline | 30–90 days | 9–24 months from first drawdown |
| Owner-builder eligible? | N/A | Most lenders refuse; specialist lenders only |
The practical takeaway: a construction loan asks more of you up front and during the build, but charges you less interest along the way. By the time the home is complete and the loan converts, you're holding a normal home loan with the same lender and the same balance you'd have had if you'd bought established — just with a fresh build, a builder's warranty, and (for first home buyers) a stack of grants you wouldn't have qualified for buying old.
The Five Build Stages and Drawdown Schedule
Your construction loan is structured around the same five physical stages every Australian build moves through. Each stage triggers a progress payment, and your lender releases funds only after an independent valuer confirms the work is done. Typical drawdown schedules look like this — your exact percentages will depend on your builder's contract, but most fall within these ranges.
1. Base / Slab — typically 10–15% of the build cost. Site preparation, excavation, plumbing rough-in, footings poured, concrete slab cured. This is the first physical sign your home is real. Slab inspection by the council and your lender's valuer triggers the first drawdown. Defects at this stage (slab cracks, level issues, plumbing routing errors) are cheap to fix now and very expensive later — book an independent inspection before signing the stage off.
2. Frame — typically 15–20% of the build cost. Wall framing, roof trusses, internal frames in place. The home now has a recognisable shape. Frame inspections check structural compliance with engineering plans. Once approved, the second progress payment releases.
3. Lockup — typically 20–25% of the build cost. Roof on, external walls, windows and external doors fitted. The home is now weathertight and physically secure. Lockup is the largest single drawdown for most builds because the bulk of structural and weatherproofing work is now complete. From this point, internal trades work in a sealed, dry environment.
4. Fixing / Fit-out — typically 20–25% of the build cost. Internal walls plastered, kitchen and bathrooms fitted, internal doors hung, electrical and plumbing finished, painted. The interior is functional. This stage is where most variations get noticed — if you wanted a different tap or a downlight added, this is when missing it costs you.
5. Completion — typically 5–15% of the build cost. Final fit-out, landscaping per contract, council compliance certificates, final clean. The builder hands over the keys, your lender releases the final payment, and the loan converts to a standard principal-and-interest home loan. Book your independent practical completion inspection before you sign off — anything you find now is the builder's problem; anything you find afterwards is your problem under the warranty.
Across all five stages, expect 9–18 months from first drawdown to handover. Volume builders running standard designs are at the faster end; custom builds and double-storey homes run longer. Your lender will give you a 24-month construction window — going beyond it requires an extension and triggers another credit assessment.
Construction Loan Deposit Requirements
Construction loan deposits are calculated on the total project value (land + build), not just the construction component. The minimum varies sharply depending on whether you're using a registered builder with a fixed-price contract, building a custom design, or going owner-builder.
| Build type | Minimum deposit | Typical deposit | FHB Guarantee eligible? |
|---|---|---|---|
| House & land package (registered builder, fixed price) | 5% (with FHBG) or 10% (without) | 10–20% | Yes |
| Custom build on land you already own | 10% (with FHBG) or 15–20% | 15–25% | Yes, if structured as combined land + build at signing |
| Knock-down rebuild | 10–15% | 15–25% | Sometimes — depends on lender |
| Owner-builder | 20–30% | 25–35% | Generally no |
| Major renovation | 10–20% | 15–25% | Generally no (FHBG is for new homes) |
For first home buyers, the cleanest path is a fixed-price house-and-land package combined with the First Home Guarantee. That gets you to 5% deposit with no LMI on a brand-new home, plus the new-build grant stack. Custom builds work too if your broker structures the land and build contracts to settle together — sign them sequentially and the FHBG window can close.
What counts toward your deposit: cash savings (genuine savings — held for 3+ months), the equity in land you already own outright, gifted funds from family (non-refundable), and First Home Super Saver Scheme withdrawals. What doesn't count toward your deposit: the value of the FHOG (paid at completion), tax refunds, or money borrowed elsewhere.
Budget another 3–5% on top of your deposit for legal fees, lender fees, building inspections at each stage, and contingency for variations. Running too tight to the deposit minimum is the most common reason builds stall — give yourself a buffer.
Construction Loan Interest Rates in 2026
Construction loan rates in 2026 sit a touch higher than equivalent standard home loan rates — typically 0.10–0.50% above the same lender's owner-occupier variable rate during the build, reverting to the standard rate at completion.
The premium exists because the lender is carrying more risk. The home doesn't exist yet, the builder might not finish, costs might overrun, and the property might not value up at completion. The progress-payment structure also costs more to administer — every drawdown triggers a valuation inspection and a release approval. That admin overhead is baked into the rate.
During the build, your repayments are interest-only on the cumulative drawn balance. That keeps your holding cost low while you're still paying rent at your current place. Once the home is complete and the final progress payment is released, the loan automatically converts to your lender's standard principal-and-interest variable rate, and the construction premium disappears.
What drives the rate you actually get:
- Your loan-to-value ratio (LVR). Below 80% gets you the best pricing. Above 80%, expect a small loading and either LMI or a guarantee scheme.
- Whether the loan is variable or has a fixed-rate option. Most lenders only offer variable during the build. Some allow you to fix at completion.
- Owner-occupier vs investment. First home buyers building their principal residence get the cheapest pricing. Investment construction loans are 0.20–0.40% higher.
- Whether you're using the First Home Guarantee. Lenders offering the FHBG quote standard owner-occupier rates with the premium added — the LMI is replaced by the federal guarantee, not by a higher rate.
Bank advertised rates change too often to publish a useful rate table here. The actual rate you'll be offered depends on your situation, your deposit, and the lender's appetite for construction lending right now. A construction-loan specialist broker will pull live quotes from 3–5 lenders and compare them on the same scenario — that's the only reliable way to know what you'll actually pay. Match with a broker for free →
Worked Example: $650K First Home Build in Western Sydney
The mechanics are easier to grasp with real numbers. Here's a realistic scenario for a NSW first home buyer building a 4-bedroom home on a house-and-land package in Western Sydney in May 2026.
The numbers:
| Item | Amount |
|---|---|
| Land purchase | $280,000 |
| Fixed-price building contract (4-bed, 200m², standard inclusions) | $370,000 |
| Total project cost | $650,000 |
| Deposit saved (genuine savings) | $32,500 (5%) |
| First Home Guarantee | Eligible — 5% deposit, no LMI |
| Loan amount required | $617,500 |
Government money stacked on this build:
| Grant / Concession | NSW value |
|---|---|
| First Home Owner Grant (new homes ≤$600K, new build) | $10,000 |
| First Home Buyer Assistance Scheme — full stamp duty exemption (new home ≤$800K) | ~$24,500 saved |
| First Home Guarantee — eliminates LMI on 5% deposit | ~$22,000 saved |
| Total free / saved | ~$56,500 |
So this buyer's actual out-of-pocket cost to get into a $650K new home is the $32,500 deposit plus a few thousand in legal/inspection costs — instead of the ~$130,000 they'd need to bring to an established home of similar value.
What they pay during the build:
The build typically takes 9–12 months. Their interest rate is 6.49% (a 0.20% premium over the equivalent owner-occupier rate of 6.29%).
| Stage | Approx. % of loan | Cumulative drawn | Monthly interest cost (approx.) |
|---|---|---|---|
| Land settlement (month 0) | 45% | $278,000 | $1,500 |
| Slab (month 2) | +10% | $340,000 | $1,840 |
| Frame (month 4) | +20% | $464,000 | $2,510 |
| Lockup (month 7) | +20% | $588,000 | $3,180 |
| Fit-out (month 9) | +5% | $617,500 (full draw) | $3,340 (final IO month) |
| Completion (month 11) | Final | $617,500 P&I | ~$3,900 P&I/mo |
Over the ~10-month build, total interest paid is roughly $24,000 — significantly less than if the full $617K had been drawn from day one (which would have been ~$33,000 over the same period).
At completion, the loan converts to principal-and-interest at the standard owner-occupier rate. Repayments settle into a fixed monthly figure for the next 25–30 years.
The grant stack means this buyer effectively bought a new home for $56K less than the price tag. Run your own numbers in the borrowing capacity calculator → to see what you could afford.
Construction Loans for First Home Buyers — The Grant Stack
This is the section bank websites won't write because it's not their job. For first home buyers building new, the federal and state grants stack on top of each other in ways that don't apply to buying established properties.
Here's the full stack, and how to think about each piece.
Federal: First Home Guarantee (FHBG) — 5% Deposit, No LMI
The First Home Guarantee lets eligible first home buyers purchase or build with as little as a 5% deposit, with the federal government guaranteeing the remaining 15% to avoid Lenders Mortgage Insurance.
For construction loans, this means:
- You can build with $32,500 down on a $650,000 project instead of $130,000
- You save the LMI premium (typically $20,000–$30,000 on a 95% loan)
- The loan still works as a normal construction loan with progress payments
35,000 places per year nationally. Income caps apply ($125K single, $200K couple). The home must be your principal residence.
Federal: Help to Buy — Shared Equity for Newly Built Homes
Help to Buy is a separate federal scheme where the government takes an equity share (up to 30% on a new build, 25% on existing) in exchange for contributing to the purchase price. 10,000 places per year.
You can use Help to Buy on a new construction, but it doesn't stack with FHBG on the same property — you pick one or the other. Help to Buy works better if you have a tiny deposit (2%) and want to keep your loan size dramatically lower; FHBG works better if you have 5% and want to own 100% of the home from day one.
State Grants: First Home Owner Grant (FHOG)
FHOG is the original new-build grant introduced in 2000. It only applies to brand-new homes, which is why first home buyers building catch it and first home buyers buying established miss out.
| State | New build FHOG | Property value cap |
|---|---|---|
| NSW | $10,000 | $600K (existing) / $750K (house & land) |
| VIC | $10,000 | $750K |
| QLD | $30,000 (until 30 June 2026) | $750K |
| WA | $10,000 (Perth metro) | $750K |
| SA | $15,000 | No cap from 6 June 2024 |
| TAS | $10,000 | No cap |
| ACT | No FHOG (replaced with stamp duty concession) | — |
| NT | $10,000 | $750K |
QLD's $30,000 grant is dramatically larger than other states. If you're prepared to be flexible on location and you can build in QLD, this alone can be worth more than two years of savings.
State Stamp Duty Exemptions for New Builds
This is often the biggest dollar amount in the stack. Stamp duty on a $650,000 home is typically $25,000–$30,000 — and most states waive or reduce it heavily for first home buyers, especially on new construction.
Examples (May 2026):
- NSW: Full stamp duty exemption for FHB on new builds up to $800K
- VIC: Full exemption up to $600K, sliding scale to $750K
- QLD: Full exemption for FHB on new builds up to $700K
- WA: Full exemption up to $450K, sliding scale to $600K (Keystart pathway also available)
- SA: Full exemption on new builds up to $650K
- TAS: 50% concession on transfers up to $750K
See your state's exact 2026 grants and concessions →
State-Specific Schemes (Worth Checking)
- WA Keystart: A government-backed lender that lets eligible first home buyers build with as little as a 2% deposit. Works for new construction. Income and price caps apply. See the Keystart guide →
- VIC HomeBuyer Fund: Shared equity scheme similar to Help to Buy but state-run. Government takes up to 25% equity share.
- NSW Shared Equity Home Buyer Helper: Up to 40% equity share for eligible single parents, key workers, and singles 50+.
How the Stack Adds Up
For an eligible first home buyer building a $650,000 home in QLD in 2026:
- FHOG (new build, until 30 June 2026): $30,000 cash
- Stamp duty exemption: ~$15,000 saved (depending on land/build split)
- FHBG (5% deposit, no LMI): ~$22,000 LMI saved
- Total benefit: ~$67,000
That's the difference between this buyer needing $130,000 to buy an established $650K home and ~$30,000 to build the same value as new. The grants don't stack like this for established home purchases.
A construction-loan specialist broker will know exactly which grants you qualify for in your state and how to structure the loan to claim them. Get matched with one — free →
Best Construction Loans Australia 2026 — What Actually Matters
The honest answer to "which is the best construction loan" is "it depends on your state, your deposit, and your builder" — but the questions you should ask every lender are the same. Headline interest rates change weekly and don't tell you the full story; the operational quality of a construction loan is where builds get delayed or smoothed.
Here are the features that actually move the needle, in rough order of impact:
| Feature | What to ask | Why it matters |
|---|---|---|
| Drawdown turnaround | "How fast does your team release funds after I lodge a progress claim?" | 3 business days vs 10 business days is the difference between your builder staying on schedule and your build stalling. Slow drawdowns are the single biggest cause of build delays. |
| Valuation methodology | "Do you value on land + contract cost, or on completed market value?" | Land + contract is more conservative; completed market value is more generous. The methodology determines your LVR and whether you need LMI. |
| Progress payment fees | "What's the fee per drawdown, and is it absorbed in the establishment fee?" | $50–$150 per claim × 5 stages = $250–$750. Some lenders bundle, some itemise. Check before you sign. |
| Interest-only handling | "Are repayments interest-only during build, and does it auto-convert at completion?" | Auto-conversion saves you a refinance application. Manual conversion lets some buyers shop the rate at completion — both are valid; know which you're getting. |
| Variation flexibility | "How do you handle mid-build variations and cost overruns?" | Some lenders require a fresh credit assessment for any variation over $5K. Others accept variations up to a percentage of contract value. |
| FHBG / FHOG / Help to Buy compatibility | "Do you participate in the FHBG, and do you handle the FHOG application on my behalf?" | Not every lender on the FHBG panel offers construction loans. Confirm before pre-approval. |
| Loan term and conversion | "What term does the loan default to at completion, and can I refinance penalty-free after 12 months?" | 30-year terms with no exit fee give you the most flexibility to refinance for a better rate post-build. |
What matters less than buyers think:
- The headline interest rate. A lender 0.10% cheaper but 5 days slower on drawdowns will cost you more in build delays than the rate saves.
- Brand familiarity. Many of the better construction lenders are credit unions or non-bank specialists, not the big four. Your broker knows them.
- Online application speed. Construction loans are paperwork-heavy regardless. A fast online application that lodges incomplete documentation just delays you later.
The cleanest way to compare is to ask a construction-loan specialist broker to quote you the same scenario across 3–5 lenders. They'll surface the operational differences a comparison-site rate table can't show. Match with one — free →
Construction Loans for Owner Builders — Why Most Lenders Won't Lend
Owner-builders are first home buyers who decide to manage their own build instead of using a licensed builder with a fixed-price contract. Most Australian lenders flatly refuse to lend to owner-builders, and the few that do require larger deposits, charge higher rates, and demand more documentation.
Why lenders are so cautious:
- No fixed-price contract means cost overruns can blow out the loan
- No registered builder means no builder's warranty insurance backing the work
- No professional project management means higher risk of stalled or substandard builds
- Owner-builders carry full personal liability for any defects, injuries, or compliance failures
What you'll typically face if you go owner-builder:
- Minimum 20–30% deposit (no FHBG access in most cases)
- Interest rates 0.50–1.50% higher than standard construction loan rates
- Required builder's risk insurance, owner-builder warranty (in some states), and detailed cost schedules
- Typically only credit unions and a small number of specialist lenders will consider you
- Strict drawdown structure — funds released against actual receipts and inspections, not stages
Bottom line for first home buyers: if your deposit is small and you're claiming the FHBG, owner-builder is almost never the right path. The lender pool is too narrow and the deposit requirement too high.
If you're determined to project-manage the build yourself, talk to a broker who specialises in non-bank construction lending before you sign anything. The decision is recoverable — you can always switch to a registered builder mid-process — but the grants are not. Match with a construction-savvy broker →
How to Apply for a Construction Loan — Step by Step
Construction loan applications follow the same shape regardless of which lender you go with. The order matters — getting it right protects your deposit, your grants, and your build timeline. Getting it wrong can cost you tens of thousands and months of delay.
Step 1: Get pre-approved. Before you sign anything else — before you commit to a builder, before you put a deposit on land, before you pick a house plan — get a construction-loan pre-approval that confirms your borrowing capacity for the total project value (land + build). Skipping this and signing a contract first is the most common way first home buyers lose their deposit. Pre-approvals last 90 days and can be extended.
Step 2: Sign a fixed-price building contract. Get your builder to issue a fixed-price contract that itemises inclusions, exclusions, and the progress payment schedule. Insist on fixed-price; cost-plus and labour-only contracts disqualify you from most construction loans. Ask explicitly which items are excluded — landscaping, fencing, driveways, blinds, flooring upgrades, and utility connections almost always are.
Step 3: Get council approval and finalise plans. Council development approval (DA) and construction certificate (CC) — or your state's equivalent — must be in hand before formal application. The lender needs council-stamped plans to value the build. Some lenders accept a "subject to DA" condition; most don't.
Step 4: Lodge the formal loan application. Your broker submits the formal application with all paperwork: income and employment verification, debts and expenses, the deposit source, the fixed-price contract, council-approved plans, builder's licence and insurance details, and the progress payment schedule. The lender does a full valuation (land + build cost or completed market value, depending on lender). Approval typically takes 2–4 weeks.
Step 5: Settle the land. If you're on a house-and-land package, the land settles first. The lender funds the land purchase, and you start paying interest on the land component from settlement day. The build hasn't started yet, but the meter is running on the drawn portion of the loan.
Step 6: Construction begins; progress payments release at each stage. Your builder starts work. At the end of each stage (slab, frame, lockup, fit-out, completion), you sign a stage claim, an independent valuer confirms the work is done, and your lender releases the progress payment directly to the builder. You don't handle the money. Your interest cost steps up as the cumulative balance grows.
Step 7: Practical completion and conversion to a standard home loan. Once the final progress payment is released, the construction loan automatically converts to a standard principal-and-interest home loan over 25 or 30 years. Move in, organise home insurance before settlement, and 6 months later check your rate against the market — most first home buyers leave money on the table by not refinancing once the build premium drops off.
9 Construction Loan Mistakes First Home Buyers Make
These are the most common traps in NestPath's first-home-buyer community for builders. None of them are obvious until you've hit one.
1. Choosing the lowest sticker rate without checking valuation rules. Lenders value on land + construction cost, not market value. A lender with a slightly higher rate but more generous valuation methodology can save you $40K of LMI compared to the cheap-rate competitor.
2. Forgetting about cost-of-construction exclusions. Fixed-price contracts almost always exclude landscaping, fencing, driveways, blinds, flooring upgrades, and connections to utilities. Budget another $30K–$60K on top of the contract.
3. Not getting pre-approval before signing the building contract. If finance falls through after you sign, you can lose your deposit and be sued for the contract price. Pre-approval first, contract second. Always.
4. Underestimating the build timeline. Builders quote 9–12 months. Real-world builds in 2025–2026 are running 14–20 months due to ongoing trade and material shortages. Factor extra rent into your monthly budget.
5. Picking a non-fixed-price contract. Cost-plus and labour-only contracts shift overrun risk onto you and disqualify you from most construction loans. Insist on fixed-price.
6. Ignoring the variation process. Every change to the build (different tap, extra power point, upgraded benchtop) requires a written variation, lender approval, and possibly a fresh valuation. Lock down your inclusions before the slab is poured.
7. Not budgeting for stage-payment fees. Most lenders charge $50–$150 per progress payment claim. With 5+ payments, that's another $300–$750 in fees most builders forget.
8. Forgetting the FHOG and stamp duty timing. Some grants are claimed at first drawdown. Others only at completion. Some require occupation within 12 months. Miss the timing rule and you can lose the entire grant. Your broker should be coaching you on this — if they're not, find a better broker.
9. Treating the construction loan as the final product. At completion, the loan converts to a standard home loan but stays with the same lender. Many first home buyers forget to refinance once construction is done, missing 12–18 months of refinance discounts and switching incentives. Set a calendar reminder for 6 months post-completion to compare your rate against the market.
Frequently Asked Questions
Can a first home buyer get a construction loan?
Yes. Most major banks and lenders offer construction loans to first home buyers, and you can combine a construction loan with the First Home Guarantee (5% deposit, no LMI) and the First Home Owner Grant for new builds. The combination of construction lending and FHB grants is the most generous funding pathway available to first home buyers in Australia.
How much deposit do I need for a construction loan?
Most lenders require a minimum 5% deposit if you qualify for the First Home Guarantee, or 10–20% otherwise. Owner-builders typically need 20–30%. Your deposit is calculated on the total project value (land + construction cost), not just the construction component.
What's the difference between a construction loan and a regular home loan?
A regular home loan releases the full loan amount on settlement day for an existing property. A construction loan releases funds in five progress payments — one at the end of each build stage — and only charges interest on the cumulative drawn balance. During construction, you make interest-only repayments. At completion, the loan converts to a standard principal-and-interest home loan.
How long does a construction loan last?
The construction phase typically runs 9–18 months. Most lenders give you a 24-month construction window from first drawdown. After completion, the loan converts to a standard home loan term of 25 or 30 years.
Can I use the First Home Owner Grant with a construction loan?
Yes. The FHOG is specifically designed for new builds (it doesn't apply to existing homes in most states), so a construction loan is the natural pairing. The grant amount varies by state — $10,000 in NSW/VIC/WA/TAS/NT, $30,000 in QLD until 30 June 2026, $15,000 in SA. Property value caps apply.
Can owner-builders get construction loans?
Most major lenders refuse to lend to owner-builders. A small number of credit unions and non-bank lenders will, but typically require a 20–30% deposit and charge 0.50–1.50% higher rates. Owner-builders generally cannot access the First Home Guarantee. If you're a first home buyer with a small deposit, owner-builder is almost never the right path.
Are construction loan interest rates higher than home loan rates?
Yes — typically 0.10–0.50% higher than the equivalent standard variable rate during the construction phase, reflecting the additional risk and admin overhead. At completion, the loan converts to your lender's standard variable rate, eliminating the premium.
Do I pay stamp duty twice on a construction loan?
No. You pay stamp duty once, on the land component, at the time of land settlement. The construction component is not separately stamped. Most states offer full or partial stamp duty exemptions for first home buyers on new builds.
What happens if my build goes over budget?
If costs exceed your loan amount, you'll need to either fund the overrun from your own savings, apply to increase the loan (with a fresh valuation and credit assessment), or stop work. This is why fixed-price contracts and a 10–20% contingency buffer are critical.
Can I refinance a construction loan to a cheaper lender?
Yes — but typically only after the construction phase is complete and the loan has converted to a standard home loan. Most lenders won't refinance a partially-drawn construction loan from a competitor. Set a reminder to compare rates 6 months after completion.
What documents do I need for a construction loan application?
In addition to standard home loan paperwork (income, employment, debts, deposit verification), you'll need: a fixed-price building contract from a licensed builder, council-approved house plans, a builder's specifications schedule, a progress payment schedule, the builder's licence and insurance details, and (for owner-builders) detailed cost estimates and warranty insurance.
How does a construction loan differ for a house and land package vs. a custom build?
For a standard house-and-land package with one builder, the loan covers both the land settlement and the staged construction. For a custom build where you've already bought the land separately (or are buying it from a different vendor), the loan structure is similar but may involve a "land + construction" split with two separate loan facilities. Tell your broker upfront which path you're on.
Get Matched with a Construction-Loan Specialist Broker
Construction loans are a niche product. Most general home-loan brokers don't structure them often enough to know which lenders are best for your specific state, deposit, and grant eligibility.
NestPath connects first home buyers building new homes with brokers who specialise in construction lending — and who'll help you stack the FHBG, FHOG, state stamp duty exemptions, and Help to Buy where eligible.
It's free. We're paid a referral fee by the broker only if you settle a loan, so the service is no cost to you. Match with a broker now →
Or, if you're earlier in the process, run the borrowing capacity calculator → to see what you can afford to build.
This article is general information only and does not consider your personal circumstances. Grant amounts, eligibility, and tax treatments change frequently. Verify current details with your state's revenue office and an independent professional before making decisions. NestPath is not a lender, not a financial adviser, and not a tax adviser.
