How is a construction loan different from a normal home loan?
A normal home loan is paid out in one go. A construction loan is released in stages as the build progresses.
While the house is still being built, the lender has no finished property to hold as security, so it does not release the full loan up front. Instead, each time a stage is completed and confirmed, the lender pays that portion to your builder. This also works in your favour: you pay interest only on the amount drawn so far, not on the full loan from day one.
How many drawdown stages are there?
Typically five to six stages, commonly:
- Slab / base
- Frame
- Lock-up (external walls and roof)
- Internal fit-out
- Completion
The exact split and the percentage released at each stage depend on your building contract and the lender’s rules. After each stage there is usually an inspection by a valuer or the lender to confirm progress before the next payment is made. So the builder’s progress claims and the lender’s drawdown schedule need to line up, and it is best to sort that out with your broker before construction starts.
Why can buying land and building cost less in stamp duty?
In NSW, stamp duty is calculated on the value of the transaction. If you buy land first and sign a separate building contract, duty is generally charged on the land component only, not on the building contract.
An illustration (reference figures compiled by NDF; actual amounts depend on NSW rates at the time of purchase):
- $300,000 land + $450,000 building contract ($750,000 total): roughly $8,990 in duty
- An existing home at the same $750,000: roughly $29,240 in duty
That is a gap of about $20,000, which is one reason many clients choose land-and-build or knock-down rebuild. It does not automatically make building cheaper than buying, though — build costs, timeframes and variations all affect the total budget, and duty is only one line in it.
What documents are usually needed?
- The land contract or title details
- A fixed-price building contract
- Approved plans and a construction budget
- The builder’s licence and insurance details
- Your own income, asset and liability documents, as with a normal home loan
The exact checklist varies by lender. We check it with you before you commit, to cut down on back-and-forth.
Three common mistakes during construction
- No buffer in the budget. Variations and material price rises are common, so it is wise to keep a cushion rather than borrowing exactly the contract price.
- Comparing only the interest rate. Lenders differ on drawdown stages, inspection methods and the paperwork needed for each release, which affects your timeline and cash flow.
- No plan for delays. If you are renting or living elsewhere in the meantime, a longer build means more rent and interest to carry.
Want to see how your own plan would be structured?
Land-and-build, knock-down rebuild and extensions are each funded a little differently. Read about our construction loan service or book a free consultation and an advisor will line up the drawdowns around your land, budget and timeline. The assessment is free, with no fee if we cannot succeed.
This article is general information only and not personal financial or tax advice. Stamp duty figures are illustrative; actual amounts depend on the rates published by NSW Revenue at the time. Drawdown stages, document requirements and rates are set by each lender. Written October 2026.
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