The easiest way to finance a custom home project

Building a custom home means paying as the project progresses, not upfront

Construction finance releases funds in stages as your builder completes each phase of the project. You only pay interest on the amount drawn down at any given time, which keeps borrowing costs lower during the build. Once construction finishes, the loan converts to a standard home loan without needing a separate application.

For Tasmanian public servants, the process starts with working out how much you can borrow against the finished property value, not just the land. Lenders assess your income stability, which is typically viewed positively for government employees, and the builder's fixed price contract, which removes ambiguity around final costs. The land needs to be owned or purchased first, then construction approval from your local council must be in place before drawdown begins.

What lenders look at when assessing a construction loan application

Lenders assess construction loan applications based on your borrowing capacity, the builder's credentials, and the contract type. A registered builder with a fixed price building contract gives lenders certainty around costs, which is essential for approval. Your income is assessed the same way as any other home loan, but lenders also review the construction timeline and whether the project can commence building within a set period from the Disclosure Date.

Consider a Tasmanian public servant purchasing suitable land in Kingston and engaging a registered builder for a custom design. The builder provides council plans and a fixed price contract covering all materials, labour, and sub-contractor costs. The lender approves the loan amount based on the completed property's estimated value, typically requiring a deposit of at least 10% of the total land and construction package cost. During the build, the lender arranges progress inspections before releasing each payment to the builder, which protects both you and the lender from incomplete or substandard work.

How progressive drawdown works during the build

Progressive drawdown means the lender releases funds in instalments as the builder reaches agreed milestones. A typical progress payment schedule includes stages like foundation completion, frame erection, lock-up, fixing, and practical completion. Each stage triggers a progress inspection by the lender's assessor, who confirms the work meets the required standard before releasing the next payment.

You only pay interest on the amount drawn down so far, not the full loan amount. If the land costs $200,000 and the build costs $400,000, and the lender has released $300,000 to date, you pay interest on $300,000 until the next drawdown occurs. Most lenders offer interest-only repayment options during construction, which keeps your repayments lower while you may still be renting or covering other housing costs. Once the build finishes and you move in, the loan switches to principal and interest repayments unless you arrange otherwise.

Fixed price contracts reduce risk for both you and the lender

A fixed price building contract locks in the total construction cost before work begins. The builder agrees to complete the project for a set price, regardless of cost variations in materials or labour. This removes the risk of budget blowouts and gives lenders confidence when approving the loan amount.

Cost plus contracts, where you pay the builder's costs plus a margin, are harder to finance because the final price is uncertain. Lenders prefer fixed price contracts because they can assess the loan against a known project value. For Tasmanian public servants building a custom home, choosing a builder who offers a fixed price contract improves your chances of approval and makes the construction funding process more predictable. The contract should include a detailed progress payment schedule showing exactly when each instalment falls due and what work must be completed to trigger it.

Progressive Payment Fees and other construction loan costs

Lenders charge a Progressive Drawing Fee each time they release funds to your builder. The fee typically ranges from $200 to $400 per drawdown, and with five or six progress payments across a build, this adds up to around $1,500 to $2,000. Some lenders cap the total fee or offer a flat rate regardless of how many drawdowns occur.

You also pay for the progress inspections, which the lender arranges to confirm each stage is complete before releasing the next payment. Council approval fees, development application costs, and any additional payments for upgrades or variations to the original plans sit outside the loan unless specifically included in the building contract. When comparing construction loan options from banks and lenders across Australia, look at both the interest rate and the total cost of drawdown fees and inspections, as these can vary significantly between lenders.

Construction to permanent loan structure means one approval, one settlement

A construction to permanent loan starts as construction finance during the build, then converts automatically to a standard home loan once construction finishes. You go through one approval process, sign one set of loan documents, and settle once when the land is purchased or construction begins. This removes the need to reapply for finance after the build is complete.

The interest rate during construction is usually variable, even if you plan to fix the rate later. Once the build finishes and you move in, you can choose to fix all or part of the loan amount if that suits your situation. This structure works well for Tasmanian public servants because it reduces paperwork and the risk of needing to requalify for finance partway through the project. If your employment or financial situation changes during the build, the loan continues as originally approved.

When building in regional Tasmania adds time to the approval process

Building in regional areas like the West Coast or Northern Tasmania can extend the approval timeline because fewer builders operate in those areas and lenders may require additional property valuations. The construction timeline also tends to be longer due to weather conditions and the distance tradespeople need to travel, which affects the progress payment schedule.

Lenders still approve construction loans for regional projects, but they review the builder's experience in that location and whether the finished property will have sufficient value to support the loan amount. If you're building outside Hobart or Launceston, expect to provide more detail about the builder's credentials and the local demand for housing in that area. Some lenders apply stricter lending criteria for properties in postcodes they consider higher risk, which can affect your borrowing capacity or require a larger deposit.

Why starting with a conversation about your income and deposit matters

Construction loans depend on your ability to service the loan once construction finishes and repayments increase. Tasmanian public servants with stable employment and clear income records are generally well positioned, but you still need to demonstrate you can afford the repayments on the full loan amount, not just the interest-only payments during the build.

Your deposit needs to cover the land purchase and at least 10% of the total project cost, though some lenders require 20% to avoid Lenders Mortgage Insurance. If you have a smaller deposit, LMI waivers for public servants may apply depending on your employer and the lender you choose. Working out your borrowing capacity before you commit to a builder or a block of land prevents delays later. We regularly see public servants who find land and sign a building contract before confirming their loan amount, which can create problems if the lender approves less than expected.

Call one of our team or book an appointment at a time that works for you to discuss your construction loan options and how the process applies to your situation.

Frequently Asked Questions