When doing a construction loan, the loan amount is only draw-down when needed; this is usually over 5 draw-downs. Each time the builder is ready to go to the next stage he will give you an invoice for you to pass onto either your Broker or the bank directly. The bank will then pay that Invoice and the loan is draw-down, this will continue to happen for 5 stages which will be outlined in your Building Contract.

Construction loans most of the time will be Interest only for the time of the construction. Once construction has finished the loan should now convert to P/I repayments. When signing a building contract, similar to when your purchase house always make sure you sign subject to finance. Then give the signed building contract to your broker – Your broker can now organize for valuation to be done, based on the building contract and quotation and building plans that have been sent across from your builder. A lot times the valuation comes in short – thus be careful not to over capitalize on fixtures and fittings. Do your  research on the suburb and make sure what you are paying for in regards to the build and land is in line with sales data for that suburb. If the valuation does come in short the bank will only lend to certain LVR (Loan to value Ratio) If there is a shortfall you will have to cover this yourself.