Top Tips to Understand Construction Loan Fees

What Construction Loan Fees Actually Cost

Construction loan fees differ from standard home loan charges because the money is released in stages as your build progresses. You'll typically encounter a Progressive Drawing Fee each time funds are released to your builder, an application fee when the loan is set up, and potentially valuation fees at multiple stages throughout the build. These costs sit on top of your standard loan charges and can add several thousand dollars to your total financing expense.

The Progressive Drawing Fee is charged by the lender each time they release funds to your registered builder. Most lenders charge between $200 and $400 per drawdown, and a typical house and land package in Queensland involves five to six drawdowns from slab stage through to practical completion. That means you could pay between $1,000 and $2,400 in drawing fees alone across the course of your build. Some lenders include a set number of drawdowns in their establishment fee, while others charge for every single release.

Consider a buyer building a home in Ipswich under a fixed price building contract. The lender requires a progress inspection before releasing funds at each stage: base, frame, lockup, fixing, and practical completion. At $300 per drawdown, that's $1,500 in Progressive Drawing Fees before the first mortgage repayment begins. If the builder requests an additional drawdown due to variations or delays, that's another $300. Knowing these fees upfront allows you to budget accurately and avoid surprise costs during construction.

Application and Valuation Charges

Most lenders charge an application fee for construction finance, typically between $600 and $1,200. This fee covers the additional administration involved in assessing both the land purchase and the building contract, reviewing council plans, and setting up the progress payment schedule. Some lenders waive this fee during promotional periods, but it's a standard charge you should expect.

Valuation fees are often higher for construction loans than for established property purchases. The lender may require a valuation of the land at purchase, a second valuation once the building contract is signed to confirm the project's end value, and in some cases, a progress inspection fee each time funds are drawn down. A progress inspection typically costs between $150 and $250 and is separate from the Progressive Drawing Fee. If your build involves a custom design rather than a project home, expect the valuation and inspection costs to sit at the higher end of that range.

Interest Charges During Construction

During the construction phase, you only pay interest on the amount drawn down at each stage. If $100,000 has been released to cover the land and slab, you pay interest on $100,000, not on the full loan amount. This is an advantage of construction funding, but the interest compounds quickly once multiple drawdowns have occurred.

Most construction loans operate on interest-only repayment options during the build, meaning you're not paying down the principal while the house is being completed. Once construction reaches practical completion, the loan converts to a standard principal and interest structure, either as a construction to permanent loan with the same lender or by refinancing to a new lender. The interest rate during construction is often slightly higher than a standard variable rate, particularly if the lender views the project as higher risk due to an owner builder arrangement or a cost plus contract.

In a scenario where a buyer has drawn down $300,000 across three stages and the construction loan interest rate is 6.5%, they're paying roughly $1,625 per month in interest before the build is finished. That interest cost is in addition to rent or existing mortgage repayments if they haven't yet sold their current property. Budgeting for these dual costs is critical, particularly if the build timeline extends beyond the contracted completion date.

Fees for Variations and Delays

If your builder requests a variation to the fixed price contracts or the build takes longer than anticipated, you may incur additional charges. Some lenders allow a set period from the Disclosure Date to commence building, often six months. If you exceed that window, the lender may re-assess your application, charge a new valuation fee, or adjust your approved loan amount based on updated property values or your current financial position.

Variations to the building contract that increase the total project cost may also require lender approval and a revised valuation. If the variation pushes your loan amount above the original approval, expect another valuation fee and potentially a higher interest rate if your loan-to-value ratio changes. In our experience, buyers who treat their building contract as final and avoid unnecessary upgrades mid-build save both time and money on lender fees.

What Alpha Financial Clients in Queensland Should Budget For

When setting your budget for a land and construction package or a custom home finance project, include at least $3,000 to $5,000 for lender fees on top of your deposit and settlement costs for the land. That figure covers a typical application fee, five progress drawdowns, and two to three progress inspections. If you're working with an owner builder or pursuing spec home finance, add another $1,000 to $2,000 for additional valuation and risk assessment fees.

Queensland buyers building in growth corridors such as the Moreton Bay region or Logan should also budget for potential council approval delays. If your development application takes longer than expected and your building contract start date is pushed out, you may need to extend your land loan or renegotiate your construction loan terms. Some lenders charge a fee for extending the construction start window, while others absorb the cost if the delay is due to council rather than the buyer.

Understanding how lenders structure their fees and how those fees interact with your progress payment schedule allows you to plan for the full cost of your build. Construction loans are not structured the same way as established property finance, and the fees reflect that difference. If you're also considering refinancing an existing property to fund part of your deposit, factor in discharge fees and potential break costs if you're exiting a fixed rate early.

Alpha Financial can walk you through the fee structure for each lender before you commit to a building contract. Call one of our team or book an appointment at a time that works for you.

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