Building a home works differently from buying an established one. Instead of handing over the full price at settlement, your lender releases money in stages as the build progresses. Understanding how those progress payments flow helps you avoid delays, unexpected costs and awkward conversations with your builder.
How the money moves
With a typical house and land build, there are two parts. First you buy the land, which settles like a normal purchase. Then the construction loan funds the build in stages, called progress payments or drawdowns. Many lenders charge interest only on the amount drawn so far, so your repayments start small and grow as more of the loan is used. Moneysmart notes that interest-only loans may be useful for short-term loans such as construction loans.
Queensland rules on deposits and progress payments
The Queensland Building and Construction Commission (QBCC) sets out deposit limits for domestic building contracts:
- Contracts of $3,300 or less: up to 20%.
- Contracts of $3,301 to $19,999: up to 10%.
- Contracts of more than $20,000: up to 5%.
A higher deposit may apply in limited cases involving substantial off-site customised work. The QBCC also says progress payments must reflect the work completed. As an example, it notes a contractor can't claim more than 50% of the contract price, including the deposit, until at least 50% of the onsite work is finished. Paying more than the contract allows, or paying early, can reduce your cover under the Queensland Home Warranty Scheme.
The stages, step by step
Every building contract sets its own payment schedule. A common pattern looks like this:
- Deposit. Paid when you sign the building contract, within the QBCC limits above.
- Base or slab. Footings and slab are complete.
- Frame. The frame is up and, depending on the contract, inspected.
- Lock-up or enclosed. External walls, roof, windows and external doors are installed.
- Fixing. Internal linings, cabinetry and fit-out are in place.
- Practical completion. The home is finished in line with the contract, ready for handover.
Check your own contract for the exact stage names and percentages, because they vary between builders.
What happens at each drawdown
- The builder issues an invoice for the completed stage.
- You check the work. Make sure the stage really is complete. Some owners use an independent building inspector at key stages.
- You sign a drawdown request and send it to the lender with the invoice.
- The lender may order an inspection by its valuer to confirm the stage is done before paying.
- The lender pays the builder directly, and your loan balance increases by that amount.
Each step takes some time, so get invoices to your lender promptly. Builders in Mackay and the Isaac often juggle several jobs, and slow payments can push your build down their list.
Your money usually goes in first
Most lenders require your own contribution to be used before they release loan funds. If you have $60,000 of your own money in the build, that's typically paid to the builder for the early stages. The lender then pays the remaining stages. If you're a first home buyer, ask how the First Home Owner Grant and any deposit scheme fit into this order. Our first home buyers page has the current Queensland details.
An illustrative example
Round numbers for illustration only. Say your build contract is $400,000 and the construction loan is $340,000, so you contribute $60,000. Your $60,000 might cover the deposit and part of the base stage. From there, the lender pays each later stage. During the slab and frame stages you might owe $100,000 to $200,000, and interest is charged on that amount only.
Watch for variations and cost overruns
Variations are changes to the contract after signing, such as upgraded tiles, extra power points or site works that cost more than expected. Lenders generally won't increase the loan automatically to cover them. You may need to pay variations from your own savings, or apply to increase the loan, which takes time. Keep a cash buffer for this.
Plan for the costs during the build
- Interest repayments on the amount drawn, rising as the build progresses.
- Rent or your current home loan, because you're not living in the new home yet.
- Insurance on the build, depending on your contract.
- Any lender fees for progress inspections.
If you're building while you still own your current home, you may need a bridging arrangement as well. Our refinance page and our guide to bridging finance cover how that works. You can read more about building loans on our construction loans page.
Talk it through
If you're planning a build, we can talk through your contract's payment schedule, how your own funds and any grant fit in, and how different lenders handle drawdowns. Call or text us on 0458 773 002, or book a free assessment. For most home loans there's no broker fee; any fee is disclosed upfront in our Credit Guide.
Common questions
Do I pay interest on the whole construction loan from day one?
Usually not. Many lenders charge interest only on the amount drawn so far, so repayments grow as each stage is paid.
How much deposit can a Queensland builder ask for?
Under QBCC rules, for domestic building contracts over $20,000 the deposit limit is generally 5% of the contract price, with limited exceptions for substantial off-site customised work.
Who pays the builder at each stage?
Your own contribution is usually used first. After that, you sign a drawdown request and the lender pays the builder directly once it's satisfied the stage is complete.
What if I add extras during the build?
Variations often need to be paid from your own savings unless you apply to increase the loan. Keeping a cash buffer helps.
Sources
This guide is general information only and doesn't take into account your objectives, financial situation or needs. Talk to us about your circumstances before acting on it. Related: Construction loans.