Construction Loan Fees: What You'll Pay and When

Building a new home means paying for it in stages, and that changes the fee structure compared to a standard home loan.

Most lenders charge what's called a Progressive Drawing Fee every time they release funds to your builder. This typically sits between $150 and $400 per drawdown, depending on the lender. If your build involves five progress payments, you could be looking at $750 to $2,000 in drawing fees alone. Some lenders cap these fees or include a certain number of drawdowns at no extra cost, while others charge per inspection regardless of how many payments occur.

Consider someone building a custom home in Lakelands on a 450-square-metre block. Their fixed price building contract sets out five progress payments: base stage, frame stage, lock-up, fixing stage, and practical completion. The lender arranges an inspection before each payment, charging $300 per visit. That's $1,500 in progressive drawing fees before accounting for any other costs. If the builder requests an additional drawdown due to variations or delays, another $300 applies. In our experience, buyers often overlook these fees when calculating their total budget, then find themselves short when the second or third payment comes due.

Valuation and Inspection Costs for Land and Construction

You'll need two valuations when arranging construction loans: one for the land and one for the completed dwelling.

The land valuation typically costs between $200 and $400, while the 'as if complete' valuation for the proposed home ranges from $300 to $600. The second valuation estimates what the property will be worth once construction finishes, based on your council-approved plans and specifications. Lenders use this figure to determine your loan amount and loan-to-value ratio. If you're purchasing a land and construction package in an area like Golden Bay where land values have shifted over recent months, the timing of your valuation can affect how much you're able to borrow.

Some lenders bundle these costs into your loan, while others require payment upfront. Either way, they're non-negotiable.

Application and Approval Fees

Most lenders charge an application fee for construction finance, ranging from $250 to $1,000.

This fee covers the cost of assessing your application, reviewing your building contract, verifying council approval, and setting up the progressive drawdown schedule. A handful of lenders waive this fee entirely, while others offset it if you're refinancing an existing loan with them or taking out related products like home and contents insurance.

You'll also encounter legal fees if the lender requires a solicitor to review your fixed price building contract or cost plus contract before approving the loan. This typically applies when the contract includes non-standard clauses or when you're acting as an owner builder. Legal review fees sit between $500 and $1,500 depending on the complexity of the contract and the solicitor's rates.

Interest Charges During Construction

You only pay interest on the amount drawn down at each stage, not the full loan amount.

If your total loan is $500,000 but only $100,000 has been released for the base stage, your interest charges apply to that $100,000. As each progress payment is made and more funds are drawn, the interest calculation adjusts. Most construction loans offer interest-only repayment options during the build period, meaning you're not paying down principal until construction completes and the loan converts to a standard home loan.

In areas like Baldivis and Secret Harbour where land and build loans are common due to the availability of suitable land for new estates, buyers often underestimate how quickly interest accumulates once the frame stage is complete and the bulk of the loan has been drawn. A six-month build can add several thousand dollars in interest charges, depending on the construction loan interest rate and the speed of progress payments.

Council and Compliance Fees

Your lender will require proof of council approval before releasing any funds.

This means you'll need to cover the cost of submitting your development application, obtaining building permits, and meeting any conditions set by the local council. In Mandurah, these fees vary depending on the size and complexity of your build, but typically range from $1,500 to $3,000 for a standard residential home. If your design requires additional reports such as bushfire assessment, stormwater management, or heritage considerations, those costs add to the total.

Some builders include council approval costs in their quote, while others list them as a provisional sum or exclude them entirely. Check your building contract carefully to understand what's covered and what you'll need to pay separately. You'll also need separate approvals for plumbers and electricians, though these are usually handled by your registered builder and included in the contract price.

Timeline Conditions and Extension Fees

Most lenders require you to commence building within a set period from the loan approval date, often 90 or 120 days.

If you don't start construction within that window, the lender may withdraw the approval or charge an extension fee to keep the loan offer open. Extension fees typically range from $150 to $500 for an additional three months, though some lenders allow one extension at no cost. Delays can occur for any number of reasons, from wet weather to material shortages or slow council approvals, but the lender's timeline starts from the Disclosure Date, not from when you're actually ready to break ground.

If you're building in an area like Halls Head or Dawesville where coastal conditions can delay construction, factor in some buffer time when applying for your loan. Once construction starts, most lenders allow up to 12 months for completion, with extensions available if needed.

Call one of our team or book an appointment at a time that works for you to discuss how construction loan fees apply to your specific build and what you can do to minimise costs along the way.

Frequently Asked Questions