Construction finance works differently to standard home loans, and the fee structure reflects that difference.
When building in Windsor, you're likely looking at a mix of established residential blocks near the historic precinct and newer subdivisions towards the Hawkesbury River corridor. Both scenarios involve construction loans with fees structured around progressive drawdown, meaning lenders charge you based on the construction stages completed rather than releasing the full amount upfront. Understanding these fees before you commence building helps you budget for the total project cost, not just the building contract price.
What Fees Apply to Construction Finance
Construction loan fees fall into three categories: upfront application and valuation fees, ongoing progressive drawing fees, and settlement costs.
The application fee typically ranges from $300 to $800 depending on the lender and covers credit assessment and loan processing. Most lenders also charge a property valuation fee between $250 and $600, though construction finance usually requires two valuations - one for the land before construction starts and another for the completed property at the end of the build. If you're purchasing a land and construction package, both valuations are factored into your initial loan structure.
Consider a Windsor client purchasing a 600-square-metre block near George Street to build a dual-level family home. Their lender charged a $600 application fee, $400 for the initial land valuation, and flagged a further $400 valuation fee payable at practical completion. Those upfront costs totalled $1,400 before construction began, separate from their deposit and building contract.
Progressive Drawing Fees and How They Work
The Progressive Drawing Fee is the most distinctive cost in construction finance.
Lenders release funds to your builder at agreed stages - typically base stage, frame stage, lock-up stage, fixing stage, and completion. Each time the lender releases funds, they charge a progressive drawing fee to cover the inspection and administration. This fee ranges from $150 to $400 per drawdown depending on the lender. Most residential builds involve five to six drawdowns, so total progressive fees can reach $1,200 to $2,400 across the construction period.
Some lenders cap the total progressive drawing fees at a fixed amount regardless of how many drawdowns occur. Others charge per drawdown with no cap. When comparing construction loan options, the fee structure matters as much as the construction loan interest rate because a lower rate with high per-draw fees can cost more overall than a slightly higher rate with capped fees.
Interest Charges During Construction
During the build, you only pay interest on the amount drawn down, not the full loan amount.
If your total construction loan is $650,000 but only $200,000 has been released to the builder for base and frame stages, your interest charges apply to $200,000 until the next drawdown. Most lenders structure construction loans as interest-only during the building phase, then convert to principal and interest repayments once construction completes and you move into the property. This means your repayments start low and increase as more funds are released.
The interest rate during construction is usually variable, even if you plan to fix the rate once the build finishes. Lenders calculate interest daily and charge it monthly based on the outstanding drawn balance. You'll need to budget for steadily increasing repayments as each progress payment is made to your builder.
Additional Costs Beyond Lender Fees
Council approval and development application costs sit outside the construction loan but affect your total project budget.
Windsor falls under Hawkesbury City Council jurisdiction, and development application fees vary depending on the estimated cost of works. For a new residential dwelling valued at $400,000 to $500,000, council fees typically fall between $2,000 and $3,500 including Section 7.11 or 7.12 contributions. You'll also need to engage a certifier for inspections during construction, which adds another $2,000 to $4,000 depending on the complexity of your build and whether you use a private certifier or council.
If you're using a registered builder under a fixed price building contract, your contract price should include most sub-contractor costs for plumbers, electricians, and other trades. However, owner builder finance involves different risk assessment by lenders and often attracts higher interest rates or additional fees because you're responsible for paying sub-contractors directly and managing the build.
How Contract Type Affects Your Fee Structure
Fixed price contracts and cost plus contracts are treated differently by lenders.
Under a fixed price building contract, the builder quotes a total price for the completed home and absorbs any cost overruns. Lenders prefer this arrangement because the loan amount is defined upfront and the progress payment schedule is predictable. Most lenders offering construction finance will approve fixed price contracts with minimal additional scrutiny.
Cost plus contracts involve paying the builder for actual costs incurred plus a margin, usually 10% to 15%. The final build cost isn't locked in, which introduces uncertainty for the lender. Some lenders either decline cost plus arrangements or require a larger contingency buffer built into the loan amount, and may charge higher fees or interest rates to offset the increased risk. If you're considering a custom design home in Windsor with a cost plus structure, confirming which lenders will support that arrangement should happen before you commit to land purchase.
Timing Requirements and Break Fees
Most construction loan approvals require you to commence building within a set period from the disclosure date, typically six to twelve months.
If construction doesn't start within that window, the lender may require you to reapply or extend the approval, which can involve additional fees and reassessment of your financial position. This becomes relevant in Windsor when council approval takes longer than expected or if your builder's schedule pushes the start date out. Locking in your loan approval, builder contract, and council plans with aligned timing avoids this issue.
Once construction completes, your loan converts from construction to a standard home loan. If you've been on a variable rate during construction and want to switch to a fixed rate at completion, there's usually no fee for that initial rate lock. However, if you want to refinance to a different lender after completion, the usual discharge and application fees apply.
Budgeting for the Full Construction Process
A realistic budget includes the building contract, construction loan fees, council and certifier costs, and a contingency of 5% to 10% for variations or delays.
In our experience, clients building in Windsor on blocks near the river or with significant slope often encounter soil issues or additional engineering requirements that weren't obvious at the start. Having a contingency buffer within your loan amount or in savings prevents funding shortfalls mid-build. Most lenders will include a reasonable contingency in the total loan amount if it's justified by the site conditions and supported by your builder's assessment.
The difference between a well-structured construction loan and one that causes stress usually comes down to fee transparency and buffer planning. Knowing your progressive drawing fees, inspection costs, and interest-only repayment amounts before you sign the building contract means you can budget accurately and avoid surprises when each drawdown occurs.
If you're purchasing suitable land or considering a house and land package in Windsor and want to understand the full fee structure for construction funding, call one of our team or book an appointment at a time that works for you.
Frequently Asked Questions
What is a progressive drawing fee in construction finance?
A progressive drawing fee is charged by the lender each time funds are released to your builder at a construction stage. These fees typically range from $150 to $400 per drawdown, and most residential builds involve five to six drawdowns across the construction period.
Do I pay interest on the full loan amount during construction?
No, you only pay interest on the amount drawn down at each stage. If $200,000 has been released for base and frame stages, your interest charges apply only to that amount until the next progress payment is made.
What upfront fees should I expect when applying for a construction loan?
Typical upfront fees include an application fee of $300 to $800 and property valuation fees of $250 to $600. Construction loans usually require two valuations - one for the land before building and another at practical completion.
Are cost plus building contracts more expensive to finance?
Cost plus contracts can attract higher interest rates or additional fees because the final build cost isn't locked in, creating uncertainty for lenders. Some lenders may decline cost plus arrangements or require a larger contingency buffer in the loan amount.
What happens if I don't start building within the lender's timeframe?
If construction doesn't commence within the lender's required period, usually six to twelve months from approval, you may need to reapply or extend the approval. This can involve additional fees and reassessment of your financial position.
