Construction loan fees operate differently from standard home loan costs.
Where a typical mortgage has one settlement and one valuation, a construction loan involves multiple inspections, progressive drawdowns, and administrative processes that span months. That extra work translates into specific charges that most borrowers don't encounter until they're preparing to build.
The Progressive Drawing Fee Most Lenders Charge
Most lenders charge a progressive drawing fee to cover the administrative cost of managing multiple fund releases throughout your build. This fee typically ranges from $800 to $1,500 depending on the lender and the complexity of the project. It covers the coordination of progress inspections, document reviews, and fund transfers that occur each time the builder requests payment.
Some lenders bundle this into the application fee. Others charge it separately at settlement. A few lenders waive it entirely if you're borrowing above a certain threshold or meeting specific lending criteria. When comparing construction loan options from banks and lenders across Australia, this fee should sit alongside the interest rate as part of your total cost assessment.
How Progress Inspections Add to the Total Cost
Each time your builder requests a progress payment, the lender arranges an inspection to verify the stage of construction matches the claim. The lender wants confirmation that the frame is complete before releasing funds allocated to that stage, or that the roof is on before paying for roofing materials and labour.
Inspection fees range from $150 to $400 per visit depending on the valuer and property location. Most builds require five to seven inspections across slab, frame, lockup, fixing, and practical completion stages. In Karrinyup, where blocks often sit within established streets near Karrinyup Shopping Centre or backing onto bushland reserves, access is usually straightforward, but inspection costs still accumulate to around $1,000 to $2,500 across the build.
Some lenders cap the number of included inspections and charge for additional visits if the builder requests variations or the project extends beyond the expected timeline. Others absorb inspection costs into the progressive drawing fee.
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Interest Charges During Construction
Construction loans only charge interest on the amount drawn down, not the full approved loan amount. If your total facility is $700,000 but only $200,000 has been released for land purchase and initial construction stages, interest accrues only on that $200,000.
Most lenders offer interest-only repayment options during the construction period. You pay interest monthly as each drawdown occurs, and the loan converts to principal and interest repayments once the build reaches practical completion and the final inspection is signed off.
Construction loan interest rates sit slightly higher than standard variable rates, typically between 0.10% and 0.30% above the equivalent owner-occupied home loan rate. That margin reflects the additional risk and administrative load the lender carries while the property is incomplete.
Valuation Costs for Land and Construction Packages
A land and construction package requires two valuations in most cases. The first values the land at purchase. The second provides an 'as if complete' valuation, estimating what the finished property will be worth once construction wraps up.
Valuation fees vary depending on the property type and location, but in Karrinyup you'd typically see $300 to $500 for the land valuation and $400 to $600 for the construction valuation. If you're building a custom design rather than a project home, expect the valuation to sit at the higher end of that range due to the additional assessment work required.
Some lenders waive the valuation fee as part of a promotional offer or if you're refinancing other lending to them at the same time. It's worth asking, but don't assume it's included.
When Fixed Price Building Contracts Reduce Risk and Cost
Lenders prefer fixed price building contracts because they limit exposure to cost blowouts. A fixed price contract sets the total construction cost upfront, and the builder absorbs any variations unless you request changes to the scope.
Under a cost plus contract, where you pay the builder's costs plus a margin, lenders apply stricter assessment criteria and may require a larger deposit or contingency buffer. That often means higher upfront costs and additional scrutiny during the progress payment schedule.
Consider a scenario where someone in Karrinyup is building a two-storey home on a subdivided block near Gwelup Reserve. With a fixed price contract at $550,000, the lender assesses the project against that figure and structures the progressive drawdown accordingly. If the same project ran on a cost plus arrangement, the lender might require an additional 10% buffer in approved funds and charge a higher interest rate to cover the uncertainty.
Council Approval Delays and Holding Costs
Most construction loans require you to commence building within a set period from the disclosure date, usually six to twelve months. If council approval drags beyond that window, you may need to extend the loan approval, and some lenders charge an extension fee ranging from $300 to $800.
In Karrinyup, development applications processed through the City of Stirling typically take eight to twelve weeks for standard builds, though more complex designs or blocks near environmental zones can extend that timeline. If your registered builder can't start on schedule due to council delays, notify your lender early. Some will extend the commencement deadline without charge if you provide evidence of the delay.
Holding costs during this period include interest on any funds already drawn down for the land purchase, council rates, and insurance. These aren't loan fees in the strict sense, but they're ongoing costs that accumulate while you wait for construction to start.
Application and Settlement Fees on Construction Lending
Construction loan application fees sit in the same range as standard home loans, typically $400 to $800 depending on the lender. Some lenders waive the application fee but load the cost into a higher interest rate or progressive drawing fee instead.
Settlement fees on a land and build loan can occur twice: once when you settle on the land, and again when the loan converts from construction to a standard mortgage after practical completion. Not all lenders charge a second settlement fee, but where it applies, expect another $200 to $400.
If you're working with a mortgage broker in Karrinyup, they'll clarify which lenders charge separately for each settlement and which bundle the process into a single fee structure.
Owner Builder Finance and Additional Scrutiny
Owner builder finance attracts higher fees and stricter conditions than builds managed by a registered builder. Lenders view owner builders as higher risk because there's no builder's warranty or fixed price contract to fall back on if the project stalls.
Most lenders either decline owner builder applications outright or require a 30% to 40% deposit, charge a higher interest rate, and impose additional progress inspection fees to monitor the build more closely. Application fees for owner builder finance can reach $1,200 to $1,500, and some lenders also charge a risk assessment fee on top of the standard valuation.
If you're considering managing the build yourself, factor in these additional costs before committing. In many cases, the higher loan fees and interest margin outweigh the savings from acting as your own builder.
Renovation Finance and How It Differs from New Builds
A house renovation loan operates similarly to new home construction finance, with progressive drawdowns released as each stage of the renovation completes. However, lenders assess renovation finance differently because the existing structure adds complexity.
Valuation fees for renovations typically start higher because the valuer must assess both the current condition and the projected value after works complete. Inspection fees also trend higher, as the valuer needs to verify demolition, structural changes, and compliance with council plans.
In Karrinyup, where many older homes near Gwelup and Balcatta border areas are being renovated or extended, renovation finance can be a practical alternative to buying new. Just account for the fact that progressive drawing fees and inspection costs often sit 20% to 30% higher than a straightforward land and build loan due to the added assessment work.
How to Compare Total Costs Across Lenders
When assessing construction loans, add the interest rate, progressive drawing fee, inspection costs, valuation fees, and application charges into a single total. A lender offering a lower interest rate but charging $1,500 in drawing fees and $400 per inspection may cost more over the build than a lender with a slightly higher rate but capped fees.
Most builds in Karrinyup take six to nine months from slab to practical completion, assuming no major delays. Over that period, the difference between a construction loan interest rate at 6.50% and one at 6.70% might amount to a few hundred dollars, while the gap between a lender charging six inspection fees and one capping inspections at three visits could easily exceed $1,000.
Run the numbers on the total loan amount, expected drawdown schedule, and build timeline before deciding. If you're also considering refinancing other debts into the construction loan, factor in any discharge fees from your current lender as well.
Call one of our team or book an appointment at a time that works for you. We'll compare construction funding options, break down the fee structures from each lender, and show you exactly what you'll pay across the build so there are no surprises when the invoices start arriving.
Frequently Asked Questions
What is a progressive drawing fee on a construction loan?
A progressive drawing fee covers the lender's administrative cost of managing multiple fund releases throughout your build. It typically ranges from $800 to $1,500 and may be charged separately or bundled into the application fee depending on the lender.
How much do progress inspections cost during a construction loan?
Progress inspections typically cost $150 to $400 per visit, with most builds requiring five to seven inspections. Total inspection costs across a standard build usually range from $1,000 to $2,500, though some lenders cap or include a set number of inspections.
Do I pay interest on the full loan amount during construction?
No, construction loans only charge interest on the amount drawn down at each stage. Interest accrues as funds are released to the builder, not on the total approved loan amount.
Why do lenders prefer fixed price building contracts?
Fixed price building contracts limit the lender's exposure to cost blowouts, as the total construction cost is set upfront. Cost plus contracts attract stricter lending criteria, often requiring larger deposits and higher interest rates due to the added uncertainty.
Are construction loan fees higher for owner builders?
Yes, owner builder finance typically involves higher application fees, stricter deposit requirements, and additional inspection costs. Lenders view owner builders as higher risk due to the absence of a registered builder's warranty and fixed price contract.
