Construction Loan Fees: What You'll Actually Pay

Construction loan fees add up quickly when you're building a new home.

Most borrowers understand they'll pay interest during the build, but the fee structure catches people off guard. Between application charges, progress payment fees, and valuation costs, you might spend an extra $3,000 to $5,000 beyond standard home loan costs. Knowing what you'll pay before you apply helps you budget accurately and compare different construction loans on a like-for-like basis.

Application and Approval Costs

You'll typically pay between $300 and $900 to apply for construction finance. This covers the lender's assessment of your building contract, council plans, and registered builder credentials. Some lenders charge this upfront, others deduct it from your loan amount at settlement.

Valuation fees sit on top of the application charge. Because your home doesn't exist yet, lenders arrange two valuations: one for the land (if you already own it) or the combined land and construction package, and another to verify the estimated value once plans are finalised. Expect $400 to $800 depending on location and property complexity. In areas like Eltham or Warrandyte where block sizes vary significantly and custom designs are common, valuations often land at the higher end of that range.

Consider someone purchasing suitable land in Greensborough for $450,000 with construction costs of $520,000. Their lender charges a $600 application fee and $650 for both valuations. Before a single brick is laid, they've spent $1,250 in fees. That's separate from conveyancing, building permits, or the development application they've already paid the council.

Progressive Drawing Fees

This is where construction funding differs most from standard home loans. You only charge interest on the amount drawn down at each stage, but lenders charge a fee each time they release funds to your builder. Called a Progressive Drawing Fee or progress payment fee, this typically costs $150 to $400 per drawdown.

Most fixed price building contracts include five to six progress payments: deposit, base stage, frame stage, lock-up stage, fixing stage, and final completion. If your lender charges $300 per drawdown across six payments, that's another $1,800 in fees during construction. Some lenders cap this at three or four payments regardless of your actual progress payment schedule, others charge for every single payment your builder requests.

In our experience with land and construction packages across North East Melbourne, the fee structure varies dramatically between lenders. One major bank might charge $250 per progress payment with no cap, while another charges $350 but includes up to six drawdowns in that single fee. The difference over a typical eight-month build can exceed $1,000.

Each drawdown also triggers a progress inspection. The lender sends a qualified inspector (sometimes a valuer, sometimes a building inspector) to verify work has been completed to the stage your builder claims. They're checking that frame stage is actually complete before releasing those funds. Inspection costs run $150 to $300 per visit and you'll pay for every one. On that same six-stage build, inspection fees add another $900 to $1,800.

Interest During Construction

You're charged interest from the moment each progress payment is drawn down. Most construction finance includes interest-only repayment options during the building period, meaning you're not paying down the principal, just covering the interest on funds already released.

As an example, if your lender releases $100,000 at base stage and your construction loan interest rate is 6.5% per annum, you'll pay roughly $540 per month in interest on that portion alone. Two months later when they release another $120,000 for frame stage, your interest payment jumps to approximately $1,190 per month across both drawdowns. By lock-up stage you might have $350,000 drawn down, costing around $1,900 monthly in interest payments.

Your building contract should include a realistic construction draw schedule. Delays cost you money because you're paying interest on drawn funds while waiting for the next stage to complete. If your builder takes three months longer than expected between frame and lock-up, you're paying an extra $1,620 in interest on funds already released (using the figures above). Most contracts require you to commence building within a set period from the Disclosure Date, usually three to six months, to keep approval valid.

Settlement and Conversion Charges

Once construction completes, your loan converts from construction funding to a standard home loan. Some lenders treat this as an automatic conversion with no additional fees. Others charge $200 to $500 for the administrative work involved.

You'll also pay for a final valuation. The lender needs to confirm your completed home is worth what they've lent you before converting to the permanent loan structure. This costs another $300 to $600 depending on location and whether your property is a straightforward project home or a custom design with architectural features.

Legal fees for settlement sit separately but you'll typically spend $800 to $1,500 on conveyancing for the construction loan settlement, particularly if you're also settling on land purchase simultaneously. That's in addition to the mortgage registration fees your state charges.

What Owner Builders Actually Pay

Owner builder finance carries higher fees across the board. Lenders view these as higher risk because you're managing trades yourself rather than working with a registered builder under a fixed price building contract. Application fees might be 50% higher, and some lenders require monthly progress inspections rather than stage-based inspections, multiplying those costs significantly.

If you're planning to act as owner builder, factor in application fees around $1,000 to $1,500, and inspection costs that could reach $3,000 to $4,000 for a typical build when you're paying for monthly rather than stage-based inspections. Not every lender offers owner builder finance, which limits your ability to compare and potentially increases your construction loan interest rate as well.

Call one of our team or book an appointment at a time that works for you. We'll map out the complete fee structure for your specific build, including which lenders cap their progress payment fees and which inspectors work efficiently in your area. Having that breakdown before you sign a building contract means you can budget properly and avoid mid-build financial surprises.

Frequently Asked Questions