Beginner's Guide to Construction Loan Fees

What You Actually Pay in Construction Loan Fees

Construction loan fees fall into two categories: upfront application and valuation costs, and progressive drawing fees charged each time funds are released during the build. Most lenders charge between $150 and $300 per progress payment, which typically occurs five to six times throughout a standard residential build.

Consider a community health nurse building a custom home who receives approval for construction finance with a total loan amount of $480,000. The lender charges a $600 application fee, a $350 valuation fee for the land, and a $250 valuation for the proposed construction. On top of that, a $200 progressive drawing fee applies each time funds are released. With six scheduled drawdowns across the build, the total progressive payment fees reach $1,200. Combined with the upfront costs, the total fee structure for that construction loan sits at $2,400 before a single brick is laid.

These fees exist because construction finance requires more administration than a standard home loan. Each progress payment triggers a bank inspection, document review, and funds transfer to the registered builder based on the construction draw schedule. Lenders also carry higher risk during the building phase, as they're funding an incomplete asset without the same security as a finished dwelling.

How Progressive Drawing Fees Are Charged

Progressive drawing fees are invoiced each time you request a drawdown under the progress payment schedule. The lender sends an inspector to confirm the stage of work matches the builder's claim, then releases funds to the builder once that inspection clears. You're charged the fee regardless of the amount drawn down.

In a scenario where a community health nurse is building under a fixed price building contract, the progress payment finance typically follows a five-stage model: deposit or base stage, frame stage, lockup stage, fixing stage, and completion. If the lender charges $250 per drawdown, that's $1,250 in progressive fees across the build. Some lenders cap these fees or bundle them into a single upfront charge, but most charge per drawdown. The fee doesn't change whether the drawdown is $40,000 or $120,000, so smaller or more frequent payment schedules can increase your total cost without adding any value to the build itself.

During construction, you only pay interest on the amount drawn down, not the full approved loan amount. If $150,000 has been released and your construction loan interest rate is 6.5%, you're charged interest on $150,000 until the next drawdown occurs. This structure keeps your repayments lower during the build, but the progressive fees still apply at each stage regardless of how much interest you're paying.

Upfront Fees: Application, Valuation, and Legal Costs

Before construction begins, expect to pay an application fee, two separate valuations (one for the land, one for the proposed build), and sometimes a legal documentation fee. Application fees range from $400 to $750 depending on the lender. Valuation fees vary by location and complexity, but typically sit between $300 and $600 for the land and $250 to $500 for the construction valuation.

Some lenders waive the application fee or roll costs into the loan amount, but valuation fees are almost always payable upfront. If you're purchasing a land and construction package or entering a cost plus contract where the final build cost isn't fixed, the construction valuation becomes more detailed and may cost more. You'll also need council approval and a development application in place before most lenders will proceed, and while those aren't lender fees, they're part of the total cost to commence building within a set period from the disclosure date.

For community health nurses working irregular rosters or managing income from multiple health services, structuring construction finance around your pay cycle and planned start date makes a tangible difference to cash flow during the build. We regularly see applicants underestimate the upfront fees or fail to account for the gap between land settlement and the first construction drawdown, which can stretch several months if council plans or site works are delayed.

Interest-Only Repayment Options During Construction

Most construction loans automatically place you on interest-only repayment options during the build, switching to principal and interest once the build completes and the loan converts to a standard mortgage. This keeps your repayments lower while you're still paying rent or living elsewhere, and means you're not making additional payments on an incomplete property.

The construction to permanent loan structure is designed so you don't need to refinance after the build finishes. The interest rate, loan term, and repayment type all adjust automatically once the final inspection clears and the lender receives the certificate of occupancy. During construction, if you want to make additional payments to reduce the balance, most lenders allow it without penalty, but given you're only paying interest on progressive drawdown amounts, there's limited benefit unless you're cashed up and want to reduce the final loan balance before conversion.

What Owner Builder Finance and Renovation Loans Add in Fees

If you're pursuing owner builder finance, expect higher fees and stricter conditions. Lenders view owner builders as higher risk because there's no registered builder managing the project, so application fees can increase by $200 to $500, and some lenders charge a higher construction loan interest rate or require a larger deposit. You'll also need to demonstrate experience or qualifications in construction, provide detailed costings for every trade, and manage the progress payment schedule yourself, including arranging inspections and paying sub-contractors like plumbers and electricians directly.

Renovation finance works similarly to new home construction finance in terms of fee structure, but the valuation process differs. The lender values your existing property, then estimates the value after renovation. If you're doing a major renovation rather than building new, some lenders classify it under a house renovation loan product, which may have slightly different progressive drawing fees or allow fewer drawdown stages. Either way, the progressive payment schedule still applies, and you'll still pay per drawdown.

Comparing Construction Funding Across Lenders

Not all construction finance products charge the same fees. Some lenders targeting health professionals offer reduced or capped progressive drawing fees as part of their package. Others charge higher fees but offset them with a lower construction loan interest rate or more flexible construction draw schedule.

When comparing options, calculate the total fee load across the build, not just the headline interest rate. A lender charging $150 per drawdown over six stages costs $900 in progressive fees, compared to $1,500 from a lender charging $250 per stage. Over a 12-month build, that $600 difference might matter more than a 0.1% rate variation, especially if you're managing a tight budget and building a custom home under a fixed price contract.

Access construction loan options from banks and lenders across Australia through a broker who understands how different fee structures affect your total cost. Some lenders also charge higher fees for land and build loans or house and land packages compared to building on land you already own, so the scenario matters when comparing quotes. If you're building a project home with a volume builder, some lenders offer discounted fees because the build risk is lower and the progress inspection process is more standardised.

When Construction Loan Fees Get Refunded or Waived

If your construction loan application is declined after you've paid the valuation fee, most lenders won't refund it. The valuation has already been completed, and the cost reflects the work done by the valuer, not the outcome of your application. Application fees are occasionally refundable if the lender declines your loan before any processing occurs, but that's rare.

Some lenders waive the application fee during promotional periods or for certain professions, including nurses. We've seen lenders waive progressive drawing fees entirely for builds under $500,000 or cap them at a flat $500 regardless of how many drawdowns occur. Those offers aren't advertised widely and often depend on your deposit size, employment stability, and the lender's appetite for construction funding at the time you apply. It's worth asking, particularly if you're building on suitable land in an established area where the lender's risk is lower.

How Construction Loan Fees Affect Your Borrowing Capacity

Construction loan fees don't usually affect your borrowing capacity directly, but they do affect how much cash you need upfront. If you're relying on savings to cover the deposit and fees, a $3,000 fee load on top of your deposit and stamp duty can reduce what's available for contingency or finishes.

Some lenders allow you to capitalise certain fees into the loan amount, but that increases your total debt and the interest you pay over the life of the loan. If you're building your first home and using a low deposit scheme, adding fees to the loan can push your loan-to-value ratio higher, which may trigger lenders mortgage insurance or reduce your access to certain construction loan options. For community health nurses building while working part-time or on contract, keeping fees separate from the loan amount helps maintain a lower ongoing repayment once the build converts to a standard mortgage.

If you're planning to build and want clarity on which lenders charge what, or how to structure construction finance around your current income and deposit, call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions