The Easiest Way to Understand Construction Loan Fees

Construction finance works differently from a standard home loan, and the fee structure reflects that difference.

When you're building in Marmion, particularly in one of the established streets near Marmion Angling and Aquatic Club or closer to the beachfront reserves, understanding what you'll pay throughout the construction process helps you budget beyond the building contract itself. Construction loan fees cover the additional administration, inspections, and progressive drawdown process that standard home loans don't require. You'll encounter charges that don't appear on a typical purchase loan, and they're tied directly to how construction funding is released in stages rather than as a single lump sum.

Progressive Drawing Fees Cover the Staged Release Process

A progressive drawing fee is charged each time the lender releases funds to your builder at a construction milestone. Most lenders charge between $200 and $400 per drawdown, and a typical house and land package involves five to six drawdowns from slab stage through to final completion. That means you're looking at $1,000 to $2,400 in progressive payment fees across the build, separate from interest charges.

Consider a buyer financing a custom home on a subdivided block near the Whitfords Avenue corridor. The lender's construction draw schedule releases funds at base stage, frame stage, lock-up, fixing, and practical completion. At $300 per progress inspection, that's $1,500 in drawdown fees before the loan converts to a standard home loan structure. The fee covers the lender's valuer attending the site to verify the stage has been reached before releasing the next tranche of funds.

Interest is Charged Only on the Amount Already Drawn Down

You only pay interest on funds that have been released to the builder, not on the full loan amount. During construction, most borrowers make interest-only repayments on the drawn balance, which keeps repayments lower while you're still paying rent or living elsewhere. As each stage is completed and more funds are released, your interest charge increases in line with the outstanding balance.

If you've drawn down $180,000 by lock-up stage on a $450,000 construction loan, your monthly interest charge applies only to that $180,000. At current variable rates, that might mean repayments of around $900 per month during that phase, rather than the $2,200 you'd pay once the full amount is drawn. Once construction is finished and the final progress payment is made, the loan typically converts to principal and interest repayments based on the total amount borrowed.

Loan Establishment Fees Apply as They Would on Any Home Loan

Most lenders charge an upfront establishment or application fee when your construction loan is approved, usually between $600 and $1,200. Some lenders waive this fee as part of a package or promotion, but it's a standard cost on construction finance just as it is on a standard purchase loan. This fee is separate from the progressive drawing fees and covers the initial assessment, credit check, and loan documentation.

You'll also need to account for valuation fees, which can be higher for construction loans because the valuer is assessing both the land value and the proposed improvements based on council plans and the fixed price building contract. Expect to pay between $300 and $600 for the initial valuation, depending on the property location and complexity of the build.

Owner Builder Finance Attracts Higher Fees and Rates

If you're planning to manage the build yourself rather than using a registered builder, expect higher fees and a higher construction loan interest rate. Lenders view owner builder projects as higher risk, and most will only lend up to 80% of the land and construction cost. The progressive drawing structure also becomes more complex because you'll need to provide invoices from sub-contractors and proof of payment before each drawdown is released.

In our experience, owner builder applicants near the Marmion foreshore often underestimate the additional documentation required at each stage. You'll need to show paid invoices for plumbers, electricians, and other trades, along with statutory declarations and receipts. Some lenders charge an additional fee per drawdown for owner builder projects, pushing the per-stage cost closer to $500 rather than the standard $300.

Fixed Price Building Contracts Reduce Lender Risk and Simplify Approval

Lenders prefer a fixed price contract with a registered builder because it limits cost overrun risk and provides a clear progress payment schedule. A cost plus contract, where you're charged for materials and labour as the build progresses, is harder to finance and may attract higher fees or require a larger deposit. The fixed price structure also aligns neatly with the construction draw schedule, making it easier for the lender to release funds at agreed milestones.

When you're assessing construction loan options from banks and lenders across Australia, the type of contract you've signed will directly affect the fees you're quoted. A project home with a fixed price building contract from a volume builder will generally cost less to finance than a custom design with a cost plus arrangement, even if the final build cost ends up similar.

Development Application and Council Approval Costs Sit Outside the Loan

While your construction funding covers the build itself, the costs associated with getting council approval, lodging plans, and meeting development application requirements are typically paid upfront before the loan is drawn. You'll need to budget separately for these, particularly if you're building a custom design rather than a standard house and land package. Fees vary by council, but in the City of Joondalup, expect to pay several thousand dollars for planning approval, building permits, and associated reports.

These costs need to be covered from your deposit or savings, as they're incurred before construction begins and the first drawdown is released. If you're using a land and construction package with a volume builder, many of these fees are included in the contract price, but it's worth confirming what's covered and what you need to pay separately.

Time Limits Between Approval and Construction Can Trigger Additional Fees

Most lenders require you to commence building within a set period from the loan disclosure date, usually six to twelve months. If construction is delayed beyond that window, the lender may require a revaluation or charge an extension fee. This becomes relevant if you're waiting on council approval or if there's a backlog with builders in the northern suburbs.

If you're financing a build in Marmion and council approval takes longer than expected, confirm with your broker whether your lender allows an extension without penalty. Some lenders will extend the commencement period at no charge if you can demonstrate the delay is outside your control, while others charge a flat fee or require a full reassessment of your borrowing capacity.

Call one of our team or book an appointment at a time that works for you. We'll walk through the fee structure for your specific build, confirm what your lender charges at each stage, and make sure there are no unexpected costs once construction begins.

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