Construction and New Build Home Loans
Building or buying new, explained simply by an Adelaide mortgage broker. Construction loans, fixed price contracts, valuations, grants and the 5% deposit scheme for new builds.
Building or buying a new home uses a construction loan, which pays your builder in stages and is interest only during the build, then converts to normal repayments. You generally need a fixed price building contract, the lender values the home on completion, and eligible first home buyers can build with a 5 per cent deposit under the Australian Government 5% Deposit Scheme.
Building a home, or buying one as a house and land package or off the plan, works differently from buying established. These guides explain construction loans and their staged progress payments, the interest only build period, fixed price building contracts, valuation shortfalls on new builds, and the grants and schemes that support new builds, including the FHOG and the Australian Government 5% Deposit Scheme. Current for 2026.
What building or buying new involves
Building a home, or buying one off the plan or as a house and land package, uses a construction loan rather than a standard mortgage. You generally deal with two contracts for a package, one for the land and one for the build, sign a fixed price building contract with a licensed builder, and the lender values the home on completion, as if finished.
How a construction loan differs from a normal mortgage
A construction loan does not hand over a lump sum. It releases money to your builder in stages, called progress payments or drawdowns, as the build is completed. During the build you pay interest only, and only on what has been drawn, then the loan converts to normal principal and interest repayments after handover.
The fixed price contract and your lender
Most lenders require a fixed price building contract before funding a build, because it gives cost certainty. It is not completely fixed though, variations you request and provisional or prime cost allowances can still change the final figure, so the contract is worth understanding closely before you sign.
Valuation on completion, and the shortfall risk
For a build the lender values the finished home as if complete and lends against that. If the on completion value comes in below your total cost, you face a valuation shortfall and must cover the gap. This is more common on new builds and in new estates with few comparable sales.
Grants and schemes for new builds
New builds are well supported. Eligible first home buyers can build with a 5 per cent deposit and no LMI under the Australian Government 5% Deposit Scheme, the First Home Owner Grant applies to new homes, and stamp duty relief may apply. These can often be combined, but each has its own rules and timing.
Why building needs the right finance guidance
Construction lending has more moving parts than a standard purchase, staged drawdowns, on completion valuations, fixed price contracts and varying lender policies. Getting the structure and timing right, ideally with a broker who knows construction, is what keeps a build on track.
- Building or buying new uses a construction loan, which pays your builder in stages, not a lump sum.
- During the build you pay interest only on what has been drawn, then the loan converts to principal and interest.
- Most lenders require a fixed price building contract, though variations and allowances can still move the price.
- The lender values the home on completion, and a shortfall against your total cost must be covered in cash.
- Eligible first home buyers can build with a 5 per cent deposit under the Australian Government 5% Deposit Scheme, often alongside the grant.
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Construction and New Build Loans: common questions
Can you get pre-approval for a house and land package?
Yes, and you should get it before you commit. A house and land package involves two contracts, one for the land and one for the build, and the finance is usually a construction loan. A conditional pre-approval tells you your budget and lets you sign with confidence, while full approval follows once the land is registered and a fixed price building contract and an on completion valuation are in place.
How does a construction loan work?
A construction loan pays your builder in stages, called progress payments or drawdowns, as each stage of the build is completed, rather than all at once. You pay interest only on what has been drawn during the build, then the loan converts to normal principal and interest repayments after handover. It is secured on the on completion value of the home and generally needs a fixed price building contract.
How do interest-only payments work during construction?
During the build, a construction loan is usually interest only, and you are charged interest only on the portion of the loan that has been drawn down so far, not the whole loan. So your payments start small and rise as each stage is funded. After the final drawdown and handover, the loan switches to your chosen repayments, normally principal and interest, and your full loan term begins.
What is a fixed price building contract?
A fixed price, or lump sum, building contract sets the total price to build your home before construction starts, including the builder margin. It gives you and your lender cost certainty, which is why most lenders require one for a construction loan. It is not completely fixed though, variations you request, and provisional or prime cost allowances, can still change the final figure.
What is a valuation shortfall on a new build?
A valuation shortfall is when the lender valuation of your property comes in below the price you agreed to pay, leaving a gap you have to cover with extra cash. On a new build the lender values the home on completion, as if finished, and shortfalls are more common here because a property that does not exist yet is harder to value, especially in new estates with few comparable sales.
Does the Australian Government 5% Deposit Scheme cover new builds?
Yes. The Australian Government 5% Deposit Scheme, renamed from the Home Guarantee Scheme on 1 October 2025, lets eligible first home buyers buy with a 5 per cent deposit and no LMI, and new builds are covered. Eligible property types include a house and land package, vacant land with a separate build contract, and off the plan. The combined land and build cost must sit under your location price cap.
Can I use the FHOG to buy vacant land now and build later?
Not for the land itself. The First Home Owner Grant attaches to the new home you build, not to buying vacant land. So you can buy land now and build later, but you claim the grant through your build, once you have a building contract and meet your state construction timeframes, not by purchasing the land alone. Rules and amounts vary by state, so confirm with your state revenue office.
General information only. This page provides general information about home loans and is not financial or credit advice, a quote, or a guarantee, and your personal circumstances have not been considered. Lending policies, interest rates, fees and eligibility vary by lender and change over time. Always confirm your own situation with a licensed mortgage broker or lender before acting. Ross McFarlane (Credit Representative 526725) is an authorised Credit Representative of Australian Associated Advisers Pty Ltd t/a Keylend, Australian Credit Licence 392169.