Do you know what Construction Loan Fees really cost?

What fees apply to construction loans?

Construction loans include application fees, valuation costs, and progressive drawing fees that don't appear on standard home loans. The progressive drawing fee is the one that catches people off guard because it's charged each time the lender releases funds to your builder, typically between four and six times during the build. These fees usually range from $150 to $400 per drawdown, depending on the lender.

A valuer inspects the site before each progress payment to confirm the work has been completed to the required standard. That inspection cost is passed on to you as the borrower. Some lenders bundle the inspection fee into the progressive drawing fee, while others charge them separately. You'll also pay the usual application or establishment fee, which can range from $600 upward, and a valuation fee for the land and proposed construction, often between $300 and $600.

How progressive drawing fees work in practice

Consider a buyer in Maroubra building a new home on a block they've owned for a few years. The construction loan is set up with five scheduled drawdowns tied to the progress payment schedule in the fixed price building contract. At each stage, the lender arranges a progress inspection, releases the funds to the builder, and charges a progressive drawing fee of $300. Over the course of the build, that's $1,500 in drawing fees alone, on top of the application fee and valuation costs.

If the build runs longer than expected or the builder requests an additional drawdown outside the agreed schedule, the lender may charge another fee for the extra inspection and payment. Planning for these costs upfront means you're not scrambling to cover them from savings you'd earmarked for other purposes.

Interest charges during construction

You only pay interest on the amount drawn down, not the full loan amount. In the early stages of the build, when only the slab has been poured, you might have drawn $80,000 from a total facility of $600,000. Interest is calculated on that $80,000 until the next drawdown occurs. Most lenders offer interest-only repayment options during construction, which keeps your monthly commitment lower while the property isn't yet generating rental income or available to live in.

Once the build is complete and the final inspection is done, the loan converts to a standard home loan with principal and interest repayments. Some lenders handle this conversion automatically, while others require you to reapply or adjust the loan structure. Clarifying how the transition works before you sign avoids confusion later.

Application fees and how they compare to standard loans

Application fees on construction loans sit in the same range as home loans, but you're also paying for the lender's additional administrative work in managing the drawdown process and liaising with valuers. Some lenders waive the application fee if you're refinancing an existing loan with them or packaging the construction loan with other products. Others charge a flat rate regardless of the loan amount.

Valuation fees for construction differ from standard property valuations because the valuer is assessing land plus a proposed build rather than a completed dwelling. The report includes costings based on the building contract, council plans, and the registered builder's track record. That's why the fee tends to be higher than a straightforward property valuation.

Cost plus contracts and fee implications

If you're building under a cost plus contract rather than a fixed price building contract, the lender's risk increases because the final cost isn't locked in. Some lenders won't offer construction finance for cost plus arrangements, while others will but may charge higher fees or require a larger deposit. The progressive drawdown schedule becomes harder to predict, and if costs blow out mid-build, you may need to renegotiate the loan amount or cover the difference from your own funds.

In Maroubra, where coastal blocks can require additional engineering for footings or drainage, a cost plus contract might seem appealing because it allows flexibility. But the uncertainty can work against you when it comes to borrowing capacity and fee structures. Lenders prefer fixed price contracts because they can assess the risk more accurately.

Fees you won't find on standard home loans

Progress inspection fees, progressive drawing fees, and the extended valuation process are unique to construction finance. You also need to factor in the potential for council approval delays, which can push out the build timeline and extend the period you're paying interest without occupying the property. Some lenders charge a fee if the build doesn't commence within a set period from the disclosure date, typically six or twelve months.

If you're acting as an owner builder, expect additional scrutiny and higher fees. Lenders view owner builder finance as higher risk, and some won't offer it at all. Those that do usually require evidence of relevant building experience, detailed costings, and a larger deposit.

When to include renovation costs in a construction loan

If you're knocking down an existing dwelling in Maroubra and rebuilding, you can sometimes include demolition and site preparation costs in the loan. The lender will want to see council plans and confirmation that the development application has been approved before they'll release the first drawdown. Demolition usually forms the first stage of the progress payment schedule, with its own inspection and fee.

For buyers combining land purchase with a build, a land and construction package can cover both in one loan, but the fees still apply separately to the land component and the construction component. The land valuation is straightforward, but the construction valuation and progressive fees follow the same structure as any other build.

Call one of our team or book an appointment at a time that works for you. We'll walk through the fee structure for your specific build, compare lenders, and make sure you know exactly what you're paying before anything is signed.

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