Construction Loan Fees & What Not to Overlook

Construction loan fees work differently to standard home loan costs because the money is released in stages as your build progresses.

Most people focus on the interest rate when comparing construction loans, but the fee structure can add thousands to your build budget if you're not aware of how they're charged. Unlike a standard home loan where you draw the full amount at settlement, construction finance involves multiple drawdowns, and many lenders charge a fee each time funds are released. For someone building in Long Jetty, where the median block size and proximity to the water can influence both land value and construction timelines, understanding these costs upfront helps you budget accurately from the start.

Progressive Drawing Fees Add Up Across Multiple Stages

A progressive drawing fee is charged each time your lender releases funds to your builder. Most construction projects involve five to seven drawdown stages, from base stage through to final completion. The fee typically ranges from $150 to $400 per drawdown, depending on the lender.

Consider a builder constructing a dual-level home near Tuggerah Lake. The project runs over six stages: base, frame, lock-up, fixing, practical completion, and final. At $300 per drawdown, that's $1,800 in progressive fees alone. Some lenders waive this fee entirely, while others cap it at a set number of drawdowns. When comparing options, ask specifically how many drawdowns are included and whether additional stages attract extra charges. If your builder works to a detailed progress payment schedule with more than the standard stages, those extra drawdowns can quickly inflate costs.

Valuation Costs Occur Twice in Most Construction Loans

You'll typically pay for two valuations during a construction loan: one for the land before settlement, and another once the build is complete. The initial valuation assesses the land value and the proposed construction to determine your total borrowing capacity. The second valuation confirms the finished property value before the loan converts from construction phase to a standard home loan.

Valuation fees on the Central Coast generally sit between $300 and $600 per assessment, depending on property type and location. For a house and land package in Long Jetty, where coastal proximity and local amenities like The Entrance waterfront influence property values, lenders will factor in comparable sales and the quality of your registered builder's work. Some lenders absorb one or both valuation costs as part of their package, while others pass them directly to you. Confirm this during your construction loan application so you're not caught out at settlement.

Interest Charges Begin From the First Drawdown

Construction loans only charge interest on the amount drawn down, not the total approved loan amount. During the build, most lenders offer interest-only repayment options, meaning you're only covering the interest accrued on funds released so far. Once construction is complete and the loan converts to a standard home loan, principal and interest repayments typically begin.

In a scenario where a couple building in Long Jetty draws down $150,000 for land settlement and then $80,000 at base stage, they're only paying interest on $230,000 until the next stage is released. At current variable rates, this structure keeps repayments lower during construction compared to borrowing the full amount upfront. However, the interest still compounds over the build period, and if construction delays stretch your timeline from six months to twelve, you're paying interest for twice as long. Always factor potential delays into your budget, particularly if council approval or site-specific issues like coastal setbacks are involved.

Application and Settlement Fees Mirror Standard Home Loans

Most lenders charge a standard application fee for construction finance, typically between $400 and $900. Settlement fees, also called establishment fees, generally range from $300 to $600. These are one-off costs, not stage-based charges, and they're usually payable at the time of land settlement or loan approval.

Some lenders waive the application fee during promotional periods or as part of a package deal, particularly if you're bundling land purchase and construction funding together. If you're looking at a land and construction package in Long Jetty, where developers often work with preferred builders and pre-approved designs, ask whether the lender offers a reduced fee structure for packaged deals. You'll also want to confirm whether your settlement fee covers both the land component and the construction component, or if separate fees apply.

Progress Inspection Fees Are Usually Passed to the Borrower

Before releasing funds at each stage, most lenders require an independent progress inspection to confirm the work has been completed to the specified standard. The inspector checks that the build aligns with the council plans and the fixed price building contract before approving the drawdown. Inspection fees typically range from $150 to $350 per visit, and they're usually charged to the borrower.

For a six-stage build in Long Jetty, that could mean $1,200 to $2,100 in inspection costs over the course of construction. Some lenders include a set number of inspections in their construction loan package, while others charge separately for each one. If your builder is working on a cost plus contract rather than a fixed price contract, inspections may be more frequent to verify materials and labour costs, which can increase the total fee burden. Clarify this early, particularly if you're working with an owner builder or a custom design where the build schedule might deviate from standard project home timelines.

Legal and Conveyancing Fees Apply to Land Settlement

If you're purchasing land as part of your construction loan, you'll need to cover legal and conveyancing fees for the land settlement. These costs generally range from $1,200 to $2,500, depending on the complexity of the transaction and whether the land is part of a larger subdivision with specific covenants or easements.

In Long Jetty, where some blocks are positioned close to waterways or within flood-prone zones, additional searches or environmental checks may be required, which can add to conveyancing costs. Your solicitor will also review the building contract and coordinate with the lender to ensure funds are released in line with the progress payment schedule. This is separate to any construction-specific legal advice, which may be required if you're using a custom builder or negotiating variations to the standard contract.

Lender Mortgage Insurance May Apply to High LVR Builds

If your deposit is less than 20% of the total project cost, you'll likely need to pay lender mortgage insurance. LMI protects the lender if you default on the loan, and the premium is typically added to your loan amount rather than paid upfront. For construction loans, LMI is calculated on the total loan amount, including both land and construction costs.

For a $600,000 land and build project in Long Jetty with a 10% deposit, LMI could range from $15,000 to $25,000, depending on the lender and your financial profile. Some lenders offer reduced LMI for specific professions or first home buyers using government schemes. If you're building your first home, check whether you're eligible for any concessions or stamp duty exemptions that could offset the LMI cost.

Building a home involves more moving parts than a standard property purchase, and the fees reflect that complexity. If you're planning a build in Long Jetty and want to understand how different lenders structure their construction finance, call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions