When to Budget for Construction Loan Fees

Construction finance comes with a different fee structure to a standard mortgage. You're not borrowing a lump sum upfront, so lenders charge fees that reflect the additional administration and inspection work involved in releasing funds progressively throughout your build.

The main difference is the progressive drawing fee, which covers the cost of inspecting your site and releasing funds at each stage of construction. Knowing when these fees apply and how they add up makes it easier to set aside the right amount before you sign your building contract.

What Construction Loan Fees Actually Cover

Progressive drawing fees are charged each time the lender releases funds to your builder. Most lenders charge between $300 and $600 per drawdown, and a typical build involves five to seven progress payments. That means you should budget for around $2,000 to $3,500 in drawing fees over the course of the project.

The fee covers a progress inspection carried out by a third-party valuer or building inspector who confirms the work matches the stage claimed by the builder. Once the inspection is approved, the lender releases the funds. Some lenders bundle the inspection cost into the drawing fee, while others charge separately.

Application fees for construction loans range from $300 to $800, depending on the lender. A few lenders waive this fee altogether, so it's worth asking. Settlement fees are typically around $200 to $400, and legal or documentation fees can add another $300 to $600. If you're using a cost plus contract rather than a fixed price building contract, some lenders charge an additional review fee to assess variations.

When You Pay the Progressive Drawing Fee

You don't pay all the drawing fees upfront. The fee is charged each time a progress payment is made, which means the cost is spread across the build. The builder submits a claim once they've completed a stage, the lender arranges the inspection, and the fee is deducted from the amount drawn down or charged to your loan account.

Most lenders include the drawing fee in the loan amount, so you won't need to pay it out of pocket. If you're managing cash flow tightly, confirm with your broker whether the fee will be capitalised or deducted from each drawdown. Either way, it's part of the total cost of borrowing and should be factored into your budget from the start.

In our experience, the timing of these fees catches people off guard when they're already managing deposits for council approval, insurance, and the builder's initial payment. Setting aside a separate amount for lender fees before you commence building gives you more breathing room once the build is underway.

Application and Establishment Costs

Application fees are charged when you submit your construction loan application, and they cover the lender's assessment of your financial position, the land value, and the building contract. Some lenders waive this fee if you're refinancing or taking out a land and construction package.

Establishment fees, also called set-up fees, are charged at settlement. This is the point where the loan is formally established and the first drawdown is made available. If you're building on land you already own, the establishment fee is charged when the construction loan settles. If you're purchasing land and building at the same time, you may pay two settlement fees: one for the land purchase and another when construction finance is activated.

Legal fees cover the preparation of loan documents and mortgage registration. Some lenders use their own legal teams and include this cost in the establishment fee, while others require you to engage a solicitor separately. Either way, budget around $300 to $600 for this component.

How Fixed Price Contracts Affect Your Fee Structure

A fixed price building contract gives you more certainty around drawing fees because the number of progress payments is set out in the contract. Most fixed price contracts include five or six stages: base, frame, lock-up, fixing, practical completion, and final inspection. Each stage triggers a progress payment and a corresponding drawing fee.

Cost plus contracts involve more frequent drawdowns because the builder submits invoices as costs are incurred. This can mean eight to ten progress payments instead of five, which increases the total you'll pay in drawing fees. Some lenders also charge a contract review fee for cost plus builds, typically around $500, because they need to assess each invoice rather than relying on a fixed payment schedule.

If you're working with a registered builder on a fixed price contract, the fee structure is straightforward. If you're pursuing owner builder finance, expect higher scrutiny and potentially higher fees, as lenders view these projects as higher risk.

When Fees Are Charged on Interest-Only Repayment Options

During construction, most borrowers are on interest-only repayment options. You only pay interest on the amount drawn down so far, not the full loan amount. Drawing fees are either deducted from each progress payment or added to your loan balance, depending on the lender's policy.

If the fee is deducted from the drawdown, the builder receives slightly less than the invoiced amount, which can create confusion if they're expecting the full payment. Most builders are used to this, but it's worth confirming how your lender handles it so you can let your builder know in advance.

Once the build is complete and you move to principal and interest repayments, no further drawing fees apply. The loan converts to a standard home loan structure, and you'll only pay ongoing account-keeping fees if your lender charges them.

Avoiding Duplicate Fees When Refinancing During Construction

If you need to refinance or switch lenders partway through a build, you may be charged a second set of establishment and application fees. This usually happens when a project runs over time and the original lender's approval expires, or when a borrower's financial situation changes and they need to move to a different lender.

Refinancing during construction also means the new lender will need to conduct their own valuations and progress inspections, which adds to the cost. In most cases, it's more cost-efficient to stay with your original lender unless the rate or service issue is significant.

Some lenders charge an early exit fee if you refinance before a certain period, typically within the first two years. If you're considering this, check your loan documents for break costs or discharge fees before proceeding.

Budgeting for Valuation and Inspection Costs

Valuation fees are separate from drawing fees and are charged at the start of the loan process. The lender arranges a valuer to assess the land and review the building contract to confirm the completed value of the property. This typically costs between $300 and $800, depending on location and property type.

Progress inspections are included in the drawing fee for most lenders, but some charge separately. If your lender outsources inspections to a third-party provider, expect an additional $150 to $250 per inspection. Over a five-stage build, that adds up to $750 to $1,250.

If you're building a granny flat or undertaking renovation finance, the inspection process is similar, but the number of stages may vary depending on the scope of work. Smaller projects may only require three or four inspections, which reduces the overall cost.

Knowing how much you'll spend on fees before you start gives you a clearer picture of the total amount you need to borrow. It also helps you compare lenders, because a lender with a lower interest rate but higher drawing fees may not be the better option once you factor in the full cost.

Call one of our team or book an appointment at a time that works for you. We'll walk through the fee structure for your specific build and help you access construction loan options from banks and lenders across Australia.

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