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Construction loan

Find the right home loan and interest rate before you start building

6.95

%

p.a.1

Principal and interest

6.37

%

p.a.1,2

Comparison rate

7.15

%

p.a.1

Principal and interest

6.54

%

p.a.1,2

Comparison rate

Talk to us about your home loan needs and we will package up a home loan with the features you want and tailor the rate to your circumstance.

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    If you’re looking to build your own dream home or make some enhancement to your existing property and want to manage the build process, then a construction or building loan is likely the option you’re looking for.

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    Get access to a range of benefits

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    Interest only option for the construction period
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    Weekly, fortnightly or monthly repayments
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    Multiple loan splits

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    Offset account and
    Visa Debit card*
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    Pay Anyone, BPay, and digital wallet payments

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    Free and unlimited transactions
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    Up to 80% LVR
    View product brochure

    *Offset account and Visa Debit card are available after the construction period. Refer to our fees table. Disbursement cost and Government charges still apply.

    Compare our home loans

    Home loan comparison table

    Product Name Star Gold Owner Occupied Star Essentials Owner Occupied Star Classic Owner
    Occupied Variable Rate
    Star Choice Owner Occupied Variable Rate Star Classic Owner Occupied Fixed Rate Star Classic Owner Occupied
    Construction
    Principal & Interest Principal & Interest Principal & Interest Interest Only Principal & Interest 1 Year P&I 2 Years P&I 3 Years P&I
    Rate (80% LVR)
    except Star Gold
    5.98%p.a. 6.25%p.a. 6.35%p.a. 6.75%p.a. 6.25%p.a. 6.95%p.a. 6.95%p.a. 6.95%p.a. 6.95%p.a.
    Comparison Rate 5.98%p.a. 6.28%p.a. 6.38%p.a. 6.83%p.a. 6.28%p.a. 6.79%p.a. 6.85%p.a. 6.90%p.a. 6.37%p.a.
    Variable  
    Term 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years
    Interest Only Period 5 Years 5 Years
    Maximum Loan Amount
    (Single Security)*
    $1,000,000 $2,000,000 $2,000,000 $2,000,000 $1,000,000 $2,000,000 $2,000,000 $2,000,000 $1,250,000
    Maximum
    Loan-to-Value Ratio
    70% 80% 90% 90% 90% 90% 90% 90% 80%
    Accepts Weekly/Fortnightly/
    Monthly Payments
    Monthly Only
    LMI Applicable Above 80% only Above 80% only Above 80% Only Above 80% Only Above 80% Only
    Available for:                  
    Home Purchase
    Home Refinance
    Construction
    Features:                  
    Internet Banking
    BPAY
    Debit Card Optional Extra
    Rate May Differ
    Free Loan Splits 4 4 4 4 4 4 4 4 4
    Redraw Max $20,000 p.a. Max $20,000 p.a. Max $20,000 p.a.
    Offset Account Optional Extra
    Rate May Differ
    Max $20,000 p.a. Max $20,000 p.a. Max $20,000 p.a.
      Read more Read more Read more Read more Read more Read more Read more

    *Loan borrowing amounts, Loan-to-Value Ratio and Rates are subject to terms, conditions, eligibility criteria and final credit assessment.

    Rates + fees

    Loan Setup Fees Amount
    Construction Administration Fee $7503
    Construction Risk Fee Ask your loan specialists
    Valuation Fee (up to $1m property value) $244.203
    Progress Vals $8803
    Lender Legals $2643
    Annual Fee $0
    Discharge Fee $5954
    PEXA Fee $66.333

    Home loan comparison table

    Product Name Star Classic
    Investment Variable Rate

    Star Classic
    Investment Fixed Rate

    Star Classic
    Owner Occupied
    Construction

    Principal & Interest Interest Only 1 Year
    Principal & Interest
    2 Year
    Principal & Interest
    3 Year
    Principal & Interest
    Rate (80% LVR) 6.55%p.a. 6.95%p.a. 7.35%p.a. 7.35%p.a. 7.35%p.a. 7.15%p.a.
    Comparison Rate 6.58%p.a. 7.03%p.a. 7.01%p.a. 7.09%p.a. 7.16%p.a. 6.54%p.a.
    Variable
    Term 30 Years 30 Years 30 Years 30 Years 30 Years 30 Years
    Interest Only Period 5 Years 5 Years
    Maximum Loan Amount
    (Single Security)*
    $1,500,000 $1,500,000 $1,000,000 $1,000,000 $1,000,000 $1,250,000
    Maximum Loan Amount (MultipleSecurity)* $2,000,000 $2,000,000 $2,000,000 $2,000,000 $2,000,000 $2,000,000
    Maximum Loan-to-Value Ratio 90% 90% 90% 90% 90% 80%
    Accepts Weekly/Fortnightly/Monthly Payments Monthly Only
    Available for:
    Home Purchase
    Home Refinance
    Construction
    Features:
    Internet Banking
    BPAY
    Debit Card
    Free Loan Splits 4 4 4 4 4 4
    Redraw Max $20,000 p.a. Max $20,000 p.a. Max $20,000 p.a.
    Offset Account Max $20,000 p.a. Max $20,000 p.a. Max $20,000 p.a.
    Read more Read more Read more

    *Loan borrowing amounts, Loan-to-Value Ratio and Rates are subject to terms, conditions, eligibility criteria and final credit assessment.

    Rate + fees

    Loan Setup Fees Amount
    Construction Administration Fee $7503
    Construction Risk Fee Ask your loan specialists
    Valuation Fee (up to $1m property value) $244.203
    Progress Vals $8803
    Lender Legals $2643
    Annual Fee $0
    Discharge Fee $5954
    PEXA Fee $66.333

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    What is a construction loan?

    If you’re thinking of building or making major renovations on an existing property, getting greater control over the process is possible with a construction loan.

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    A construction loan is a type of home loan that offers flexibility for people who want to build their own home, make major renovations on an existing home, or are looking for a complete knock down and rebuild.

    Unlike traditional loans, construction or builders loans draw progressive payments throughout the construction process, while you pay interest only on money that has been used.  This helps you keep more money in your pocket when you need it.

    This specialised loan for house building is designed around your construction plans. It’s an alternative for people who are looking to build their dream home their way, instead of purchasing an established home or home and land package.

    Construction loan vs land loan

    The intent in buying land with a land loan is that you will build at some stage. However, it is not limited to a specific time frame, unlike a construction loan which requires you to start the building process within 6 months of the loan being granted.

    Homestar Finance does not currently offer land loans.

    Instead of having access to an upfront loan amount, with a construction loan you progressively gain access to money in instalments as each construction stage is completed. This is referred to as progress payments. These incremental loan payments are scheduled in line with predetermined stages in the construction project, from start to finish.

    Construction loans have an interest only repayment period while your home is being built. The interest payment of your construction loan is also calculated differently to a standard home loan, where interest is charged on the full loan amount from the beginning. With a construction loan, you will pay interest monthly, only on the total amount that has been paid at each stage to the builder. 

    Another advantage of a construction loan is that you get to select your construction team, which gives you greater control over the process and outcome. The purpose of the total or principal amount borrowed is for payment of your building contractors and materials, to build, rebuild or significantly renovate your home.

    project with brick and blueprint on white

    How does a construction loan work?

    Construction loans are set up differently to other types of home loans. For standard home loans, you pay down a deposit and your home loan lender will pay the seller the approved remaining amount to purchase your selected property. Over the life of your home loan, you will pay your lender back in monthly increments for the principal loan amount plus interest. 

    Architect and his client looking at the hologram of a house project over a tablet computer. The client is reviewing his future house layout Note to inspector: I am the author of the building project

    Your construction team

    A major appeal of a construction loan is that you get to hand-pick your team, allowing you to design and build your home to your exact needs. That means you have the freedom to choose your own registered builder, architect, project manager, and subcontractors like plumbers and electricians. 

    Before you apply for your construction loan, you will need to assemble your construction team and ensure that your land is registered according to your Australian state or territory guidelines. All building plans and contracts must be written up and council approval and builders’ insurance must be obtained.  

    Homestar Finance is also part of your team. We’ll work with you on all aspects of your loan, including the release of progressive payments, external property valuations and loan repayments. 

    The building process

    After your construction loan has been formally approved and commencement granted, you are able to start the construction process of building or rebuilding your home.

    As each stage of construction is completed and invoices are presented, progress inspections will be conducted to assess valuation before confirming the release of progress payments. 

    Progress payments are progressively paid throughout the construction period in segments directly to your builder by your financial institution on your behalf. Your progress payment schedule will be outlined in your building contract. 

    A typical building process has the following stages:  

    1

    Base/Slab

    Approximately 20% of the loan amount for concrete slab building foundation and may include 5% for the builders’ deposit.
    2

    Frame

    Approximately 20% of the loan amount for the exterior house and walls, including support structures, electrical conduits and structural plumbing.
    3

    Lock up

    Approximately 20% of the loan amount for the installation of all windows, doors, external walls, roofing, insulation and gutters.
    4

    Fixing / fit out

    Approximately 30% of the loan amount for internal fittings and fixtures in all areas such as the bathroom and kitchen. All painting, plumbing and electrics are completed and anything else in your building contract.
    5

    Completion

    Approximately 10% of the loan amount for the final stage and payment of construction including final detailing, fencing and building site clean up.

    Progress payments

    Progress payments are paid by your lender directly to your selected licensed builder as they complete each construction stage outlined in the schedule of your building contract. The building process typically has 5 stages and therefore, 5 progress payments.

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    Prior to the final approval of all progress payments, we will send out an external inspector to ensure each stage of the building process meets the standards described in the building contract. 

    Aligned with the progress payment schedule in your building contract and at the end of each construction stage, your builder will send you an invoice. To cover the cost of your build, you will need to send your loan specialist this invoice.

    The invoice must be on your builders’ company letterhead, containing their banking details and a breakdown of the amount requested, highlighting any price variations. To authorise a progress payment, the invoice needs to be signed and dated by the builder and all borrowers.

    Providing authorisation via signed invoices confirms that the builder has completed that building stage successfully and that payment should be made. This process will be repeated for all requests for progress payments until the building process is completed. 

    Construction loan borrowing power

    The borrowing power you have refers to the amount a lender is willing to lend you on a loan. The higher your borrowing power, the higher the loan amount you are able to receive.

    Assess how much money you could borrow on a construction loan via our online borrowing power calculator. Gaining loan pre-approval, also called conditional approval, will also help you understand your borrowing power and can help you gain clarity on what is financially realistic prior to applying for a construction loan.

    View our borrowing power calculator
    man signing contract

    Benefits of construction loans

    Outside of designing a home unique to you, the major benefit of a construction loan is that repayments during the construction period are interest only. This is calculated only on the money that you’ve actually used and is intended to keep costs low while you’re building. As a result, these interest only payments can help you save significantly over the life of the loan. 

    Additionally, as each construction stage is completed, an external valuer will cross check completed work so that it aligns with the specifications in your building contract. Once this quality check is granted, we streamline the payment process by making progressive transactions to your builder for you. 

    Progress payments also benefit your building contractors by maintaining a steady cash flow. This is because they receive guaranteed ongoing payments at scheduled stages of the construction period, instead of a lump sum payment at the end of the project.

    At Homestar Finance, we offer construction loans for both owner-occupiers and investors that provide flexibility and convenience throughout your build, rebuild or renovation. 

    Our Star Classic construction loan offers: 

    • Interest only repayments throughout the construction period 
    • Weekly, fortnightly or monthly repayments
    • Variable interest rate
    • Multiple loan splits
    • Up to 80% LVR
    • Additional repayments can be made anytime
    • Offset account and Visa Debit card once construction is completed
    • Pay Anyone, BPAY, and digital wallet payments
    • Free and unlimited transactions
    • PAYG and self employed accepted 
    • No annual fees

    Interest only loan repayments begin low and will gradually increase as your home’s construction advances. The interest only repayment period for a construction loan is for a maximum of 12 months. After that time, the loan will revert to principal and interest repayments.

    Is a construction loan right for you?

    While purchasing an existing home or one off the plan may be simpler, it may not be as rewarding as designing and building a home exactly the way you want it. Great for owner builders, a construction loan gives you the freedom to create a home designed for you, your family and your lifestyle.

    Perhaps you’ve found a vacant lot that is ideal to build your dream home or investment property. Or you want to stay in your area and make major renovations to an existing home in that neighbourhood. Or, maybe you’ve found the perfect location and you want to knock down and rebuild entirely. 

    If you’re planning to build a home from scratch on vacant land, getting your standard home loan may not be an option. This is because the total value of the property is not known until the construction is complete and therefore cannot be a security for the loan.  

    While a construction loan can help you build your ideal home, the building process can come with unforeseen challenges, including the responsibility of managing all building contractors. You will also need to arrange all the required paperwork and council approved building plans before the loan is approved.

    Construction loans cannot provide certainty on your exact repayments monthly. Our Star Classic construction loan has a variable interest rate which may go up and down depending on external economic factors. Interest only payments also vary based on this variable rate and the overall home loan balance. 

    How to get a construction loan to build or renovate your home

    There are a number of crucial steps you need to take prior to applying for a construction loan to build a new home or make major renovations to an existing home. It’s important to do your research and understand all of the associated construction costs. 

    Seeking home loan pre approval before applying for a construction loan will help you gain clarity on your borrowing power, including the amount of money you can realistically borrow so that you can align this with your building plans. 

    As a prerequisite for getting your construction loan approved, applicants must provide their lender with the following upon application:

    1. A signed building contract with a registered and approved builder
    2. A building plan formally approved by the local council
    3. Documentation of the properties land registration
    4. Copy of your selected builders’ company licence and insurance policy
    5. Additional quotes related to the construction, such as landscaping

    Research

    Dive deep into research before you make commitments to your builder. Consider the availability of land or an existing property in your chosen location and price range. 

    Before you buy, it’s worthwhile finding out about any local council rules and restrictions or upcoming development applications in the area that could affect the valuation of your property.  Seek professional advice where necessary.

    Additionally, identify the location of infrastructure and accessibility to services such as electricity, gas, water, drainage, sewage, telephone and broadband internet. You may need to factor in implementation costs if they don’t exist on the property already.  

    Organise your builder and contract

    Your building or major renovation must be confirmed in a signed fixed price building contract by a registered and approved builder in your respective Australian state or territory.

    Once your licensed builder is selected, you can then begin to work together to create your construction plan. Employing an architect may also be necessary to draw up specific construction designs. Depending on your chosen building company, you may also need to arrange a project manager and other subcontractors. 

    Your final building contract needs to detail each stage of the construction plan, as this will be used as a reference for future construction loan progress payments. 

    Valuation requirements

    For your construction loan to be approved, an appraisal needs to be done to determine the ‘on completion value of the property’, inclusive of the home and land. 

    The valuer will compare the fixed price building contract and their assessment of total land and construction costs against real estate sales in the local area to determine the overall property value. This amount will help decide your loan amount and will be used as security for the loan.  

    Insurance

    Insurance will be needed to safeguard the construction work and the workers. You’ll need to factor in the costs of insurance for the entire building period of your construction loan. 

    Your builder will need to have their own insurance. You will also need to obtain quotes for your own home building insurance policy and public liability insurance to cover the building process, property damage or individual injury.

    Get approvals

    You will need to obtain all required land and building permits from the local council area. It’s important to also understand all their rules and regulations that may affect what, how and exactly where on your property you are planning to build. Ticking all of these boxes will ensure that you save time and money in the long run.

    Other finance options to consider for home renovation

    To be successful in obtaining a construction loan, your building contract must outline the substantial renovation of an existing home. If this is not the case, you may choose to apply for a different type of home loan if you are only planning to only make minor renovations.

    For the minor renovation of an existing property, you could apply for a first home buyer loan or any other relevant home loan with additional funds included on top of the purchase price for renovations. Or if the renovations are planned for your current residential or investment property, you may opt to refinance your existing home loan to make additional money available for this purpose.  

    When to apply for a construction loan

    Construction loans are available for both residential and personal investment purposes. Once you’ve met all the conditional requirements of obtaining a fixed price contract from a licensed builder, and obtained land registration and council approval of your building plan, you are now ready to apply for your loan.

    The entire application process for your Star Classic construction loan is conducted online. Once all your information and required documents are submitted, we will check your eligibility for the loan to ensure you meet the lending criteria. Final approval will be subject to a credit assessment to determine your financial situation and borrowing capacity. 

    As part of the application process for a construction loan, we will hire an external property appraiser to provide a value assessment on how much the property is worth ‘on completion’.

    a woman holding her phone

    Construction loan application requirements

    We’ve made applying for a construction loan simple with our online digital application process. The documents required to apply for a construction building loan are:

    • Total requested loan amount 
    • Details of your income
    • Current financial obligations – such as personal loans and car loans
    • Credit history and available credit limits – from credit cards, store cards and interest fee accounts

    Our loan specialists are here to help you at each step of the process. You can contact us online via chat or the enquiry form. Or request to speak with one of our loan specialists by calling Homestar Finance on 1300 231 938.

    What happens after your construction loan has been approved?

    Once your construction loan has been approved and the contract has been signed, you will have a maximum of 6 months to begin your construction process as a condition.

    Refer to the earlier section of ‘How does a construction loan work’ for a detailed breakdown of all building and progress payment stages. We’ll take care of all the valuation assessments and progress payments for you. 

    Once construction is complete, your contractual loan term begins from that day forward requiring both principal and interest repayments. Typically, the life of a construction loan is 30 years. 

    If at any stage there are changes to the building contract, project amount or council approved plans, please inform us straight away.

    Get pre-approval for your home loan online

    Your home loan pre-approval application can be done completely online via our form with no paperwork involved! The form takes only 5 minutes to complete, and you can save your progress and finish at any time.

    Apply now

    Understanding more about construction home loans

    How does my builder get paid? (progress payments)

    A construction loan is paid in stages, often referred to as progress payment. This covers each stage of your build. Your builder will outline the total amount needed to construct your home, dividing the expected costs into several segments, this is called the Progress Payment Schedule and is contained in the Building Contract signed by you and the Builder. Payment is sent direct to the builder, so you do not need to worry about transferring funds yourself.

    What are progress inspections? (valuations)

    Homestar Finance will be you every step of the process, and will send someone to check on the progress of construction before releasing the next payment to your builder. 

    Do I need anything specific noted on the builder invoice?

    Yes, each invoice that is presented for payment must have the following information

    On the builder’s letterhead;
    (a) Contain the builder’s bank account details;
    (b) Provide the break-up of the amount claimed highlighting any price variations;
    (c) Signed and dated by the builder; and
    (d) Signed and dated by all borrowers.

    What happens if I need more money?

    Once we have entered into a signed contract you will not be able to increase your loan amount until the construction period has completed. It is important you borrow enough money upfront to complete the construction.

    My building contract has changed, do I need to tell Homestar Finance?

    Once building is underway it important you lets know straight away if there are any changes to your building contract or council approved plans.

    Can I apply for a construction loan as a first home owner?

    Yes. As a first home buyer, you can apply for a construction home loan if you are planning to build a new home. Construction or building loans are for all types of applicants that choose to build, substantially renovate or knock down and rebuild their home.

    How do I apply for the first home owners grant and a construction loan?

    If you’re applying for a First Home Owners Grant (FHOG)in your state or territory in Australia, then you must meet their requirements and apply for the grant separately to your construction loan. You may also be able to apply for the First Home Guarantee (FHBG).

    How much can I borrow for my construction loan?

    The maximum loan amount for a single security construction loan is $1,250,000. This maximum loan amount increases to $2,000,000 under multiple security, which is when you include multiple properties at different locations under the one loan.

    What happens if construction doesn’t go to plan and more money is needed?

    Once the construction loan contract is signed and entered, the total loan amount cannot be increased until the construction period of 12 months is complete. It may be worth factoring in a certain amount of money as a buffer into your total loan amount for any possible challenges during the construction process.

    Explore our library of articles related to your property and investment journey

    1 Rates shown apply to new eligible loans only, up to 80% LVR, loan amount up to max of $1 million and at least one applicant is on PAYG employment. Rates are subject to change without notice. Existing borrowers may have different interest rates which are dependent on the rate offered to the borrower at the date when a home loan settled and any reductions or increases the lender decided to make on the existing loan over time. Accordingly, there is not one standard variable rate that applies to all Homestar Finance home loans and existing customers can confirm their current rate(s) by logging in to internet banking or by contacting customer service. Terms, conditions, and eligibility criteria apply.

    2 Comparison rates are based on a basic Homestar Finance loan, on a $150,000 loan amount over 25 years. WARNING: This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

    3 Fees are indicative and subject to change, if the loan applicant does not proceed to settlement then all fees including valuation and legal fee incurred during processing of the loan application (where applicable) will be payable in full by the borrower/s.

    4 Discharge fee is waived if loan reaches full term as per the loan agreement.

    Other fees and charges may apply.

    DISCLAIMER: Terms, conditions and eligibility criteria apply to all our loan products and features. Fees and charges are payable. Final approval is subject to credit assessment. Information valid as at 15th November 2023 which is subject to change without notice. Third party cost(s) incurred by service provider(s) are payable and may vary or increase depending on the service provider, nature of the service and request. Any additional cost(s) are passed on directly to the applicants(s). If there is a variation or an increase, a separate quote will be provided. Please consider if the product is appropriate for your individual circumstances. If you need assistance or have any questions about a product or feature and its suitability, please contact our Loan Specialists.

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