The Real Cost of Funding Your Build
Construction loan fees differ from standard home loan costs because your lender manages multiple payments to your builder over six to twelve months instead of one upfront settlement.
Most builders in Blackburn work on a progress payment schedule tied to specific building stages. Your lender inspects each stage before releasing funds, and this process creates additional fees that don't exist with traditional mortgages. A typical land and construction package involves at least five separate drawdowns, each requiring verification before money moves from your loan account to your builder.
These fees add between $2,500 and $4,500 to the total cost of financing your build, depending on which lender you choose and how many payment stages your building contract includes.
Progressive Drawing Fees Explained
A Progressive Drawing Fee covers the cost of inspecting your building site and verifying that work matches your builder's claim before releasing each progress payment.
Lenders charge between $300 and $600 per inspection, with most Blackburn builds requiring five to six inspections across the construction period. Consider a scenario where your fixed price building contract includes slab, frame, lock-up, fixing, and completion stages. At $400 per inspection, you'll pay $2,000 in drawing fees before your builder receives the final payment. Some lenders bundle all inspections into a single upfront fee of around $1,200 to $1,500, which can reduce your total cost if your project involves more than four stages.
The inspector visits your property at each claim stage to photograph the work and confirm completion percentages. This protects both you and the lender from paying for incomplete work, but the inspection itself isn't optional regardless of how much you trust your registered builder.
Application and Establishment Fees
Most lenders charge a construction loan application fee between $600 and $900, covering the assessment of your building contract, council plans, and development application alongside your financial position.
This sits separate from the establishment fee, which typically ranges from zero to $600 depending on the lender. Some lenders waive establishment fees during promotional periods, while others capitalise these costs into your loan amount rather than requiring upfront payment. The application process for construction loans involves more documentation than standard home purchases because lenders need to verify your builder's credentials, review construction timelines, and confirm that you can service the debt throughout the building period when you're making interest-only repayment options on drawn amounts rather than principal and interest payments.
For owner builder finance, application fees can increase to $1,200 or more because lenders require additional verification of your construction experience and often mandate progress inspections by external quantity surveyors rather than standard building inspectors.
Interest During Construction
You only pay interest on amounts actually drawn down, not on your total approved loan amount.
If your loan amount is $600,000 but only $150,000 has been released for land purchase and slab, your interest charges apply to $150,000 until the next stage draws down. This creates a graduated interest cost that starts lower and increases as construction progresses. Most borrowers in Blackburn choose interest-only repayments during the building phase to minimise cash flow pressure while managing rent or existing mortgage payments elsewhere.
The construction loan interest rate typically matches standard variable rates or can be fixed for borrowers seeking certainty. Your repayment shifts to principal and interest once construction completes and the loan converts to a standard mortgage, though the exact timing depends on when your lender receives the occupancy certificate and final valuation.
When Building Delays Extend Your Costs
Construction timeline extensions can trigger additional fees if your build exceeds the original approved period.
Many lenders approve construction finance based on a six or twelve month building window. If your Blackburn project extends beyond this timeline due to weather delays, material shortages, or subcontractor scheduling, some lenders charge extension fees between $200 and $500 for each additional three month period. Your contract typically requires you to commence building within a set period from the Disclosure Date, and lenders monitor this through regular contact with your builder and review of council approval documentation.
In a scenario where your project extends from six to nine months, you'll also pay three additional months of interest on drawn amounts. At current variable rates on a $400,000 progressive drawdown averaging $300,000 over those three months, this represents roughly $5,000 to $6,000 in additional interest charges beyond your original projection. The extension fee itself adds relatively little compared to the ongoing interest cost.
Valuation Fees Across Build Stages
Lenders typically require at least two valuations for construction finance: one before approving your loan and another at practical completion.
The initial valuation assesses your land value and the projected value of the completed home, costing between $300 and $600 depending on property complexity. The final valuation confirms your finished home meets the projected value before converting your construction facility to a standard home loan. Some lenders include these valuations in their package pricing, while others charge them separately or require you to pay the valuer directly.
For house and land packages in Blackburn, where developers sell suitable land with attached building contracts, valuers assess both the land component and the builder's specifications to determine total security value. This influences your deposit requirement and whether you'll need lenders mortgage insurance on top of the other construction fees.
Legal and Settlement Costs
You'll face two separate settlements with construction to permanent loan structures: one for land purchase and another for the completed home.
Each settlement involves conveyancing fees, typically $1,200 to $1,800 per transaction. If you're purchasing a land and build loan as separate contracts, you'll pay solicitor fees twice within the same twelve month period. Government charges including stamp duty apply to the combined land and construction value in most cases, though the calculation method varies depending on whether you purchase house and land packages as a single contract or separate agreements.
Your conveyancer also reviews the building contract to identify any issues that might affect your lender's security, adding another $300 to $500 to your legal costs compared to a standard property purchase. This review becomes particularly important with cost plus contracts where the final build price can vary from initial estimates, potentially affecting your loan amount and requiring mid-construction adjustments.
Comparing Total Fee Structures
Total construction loan fees typically range from $4,000 to $7,000 depending on lender choice and project complexity, excluding interest charges.
Adding these costs to your budget early prevents shortfalls during the building process. Some borrowers factor fees into their loan amount to preserve cash reserves for unexpected variations or upgrades during construction, though this increases your ongoing interest cost slightly. Others pay fees from savings to minimise debt, particularly if building a custom home where design changes might require additional funds mid-project.
Working with a mortgage broker who specialises in construction finance helps you compare fee structures across multiple lenders rather than accepting the first approval you receive. Lenders structure their fees differently, with some charging higher drawing fees but lower application costs, while others bundle inspections at a flat rate. Your total cost depends on matching the fee structure to your specific building contract and payment schedule.
Call one of our team or book an appointment at a time that works for you. We'll review your building contract, calculate the total fee impact across different lenders, and structure your construction loan to match your build timeline and budget.
Frequently Asked Questions
How much are progressive drawing fees for a construction loan?
Progressive drawing fees range from $300 to $600 per inspection, with most builds requiring five to six inspections. Some lenders offer bundled inspection fees of $1,200 to $1,500 upfront, which can reduce total costs if your building contract has more than four payment stages.
Do I pay interest on my full construction loan amount from day one?
You only pay interest on amounts actually drawn down, not your total approved amount. Interest charges start with the first drawdown and increase as each construction stage releases more funds to your builder.
What happens if my build takes longer than expected?
Building delays beyond your approved construction period can trigger extension fees of $200 to $500 for each additional three months. You'll also pay interest on drawn amounts for the extended period, which typically costs more than the extension fee itself.
How many valuations do I need for a construction loan?
Most lenders require at least two valuations: one before loan approval to assess land value and projected completion value, and another at practical completion. Each valuation costs between $300 and $600.
Are construction loan fees higher for owner builders?
Owner builder construction loans typically have higher application fees, often $1,200 or more compared to $600 to $900 for registered builders. Lenders also require more extensive verification and may mandate external quantity surveyor inspections, which cost more than standard progress inspections.
