Construction lending does not work like an ordinary home loan. The money comes out in stages as the build progresses, there are contracts and valuations to satisfy, and the lender stays involved the whole way through. It is more paperwork, but it comes with one real advantage: new builds sit outside the Reserve Bank deposit rules, so you can often start with less.
This is the one area where the order really matters. Lenders have views on contracts, and they are much easier to satisfy before you sign. Useful to bring along:
Which one you are doing changes the lending completely, so it is the first thing to pin down.
You pay a deposit and the balance when the finished home settles, so the bank treats it much like buying an existing house. The builder carries the construction risk. This is usually the easiest route to get approved, which is why it suits people who want fewer moving parts.
You own the land and the loan draws down in stages as the build reaches agreed points. You only pay interest on what has been drawn, so early costs are low and rise as the house goes up. It needs more paperwork and the lender inspects along the way.
Buying a section first and building when you are ready. Bare land is treated differently from a house and usually needs a larger deposit, so it is worth understanding both halves before you commit to the first one.
If your home has gone up in value you may be able to borrow against it to renovate. Smaller jobs are often simplest as a top up to your existing loan. Larger structural work can be treated as construction lending, with the same staged drawdowns as a new build.
Three things that surprise people the first time they build.
The loan is not handed over in one lump. It releases in stages as the build reaches agreed points, and you pay interest only on what has actually been drawn. Early on, when only the foundations are funded, repayments are low and they rise as the house progresses.
Before releasing each payment the lender usually wants a valuation or an inspection confirming the work claimed has been done. It protects you as much as them, but it means the process has checkpoints and each one needs to be planned for.
New builds are exempt from the Reserve Bank loan to value restrictions, so most lenders will consider owner occupiers with around 10%, where an existing home would typically need 20%. That exemption exists so the lending rules do not choke off new housing supply.
There is also a gap most people do not plan for: you may be paying rent or an existing mortgage while the build is going up. That belongs in the budget from the start.
From the first conversation to the day you move in.
Your budget, your deposit and what a lender would approve. Better to know the ceiling before you fall in love with a plan.
Lenders have preferences about contracts, particularly fixed price ones. This is the point where talking to me first saves the most trouble.
I prepare the application with the contract, plans and costings, and take it to a lender whose construction criteria suit what you are doing.
The first drawdown funds the early stages. You pay interest only on what has been released rather than the whole loan.
As each stage completes, the lender checks the work and releases the next payment. I keep that moving so your builder is not waiting.
Code compliance, a final valuation, the last drawdown, and the loan converts to an ordinary mortgage.
If you are at the stage of talking to builders, that is the right time to talk to me too.
Every lender treats low deposits differently, and those rules change. I put your application where it has the best chance rather than wherever is quickest.
Paperwork, lender questions, conditions coming back. I handle the back and forth so you can get on with your life.
The lender pays me once your loan settles. That is the same whether you are buying with 5% or with 20%.
I work with first home buyers in Tauranga, Mount Maunganui, Pāpāmoa and across the Bay of Plenty, and with plenty of people who live nowhere near me. Most of this happens by phone, email and video call, so where you are does not change the advice or how easy it is to reach me. If you are local and would rather sit down together, that is easy to arrange.
The things people ask me most about construction lending.
Rather than giving you the whole loan at once, the lender releases it in stages as the build reaches agreed points. You only pay interest on what has been drawn, so repayments are low early on and rise as the house progresses. The lender usually inspects or values the work before releasing each stage.
Less than for an existing home, in most cases. New builds are exempt from the Reserve Bank loan to value restrictions, so many lenders will consider owner occupiers with around 10%. Bare land is treated differently and usually needs more.
With a turnkey build you pay a deposit and the balance when the finished home settles, so the bank treats it much like buying an existing house and the builder carries the construction risk. With a progress payment build you own the land and the loan draws down in stages as the work is done. Turnkey is simpler to finance, progress payments give you more control.
Often yes, by borrowing against the equity you have built up. Smaller projects are usually handled as a top up to your existing loan. Larger structural work can be treated as construction lending, with staged drawdowns like a new build.
Not always, but lenders are far more comfortable with one, and some require it. A fixed price contract tells the bank what the finished house will cost, which is the question it cares about most. It is worth checking with me before you sign anything.
It happens, which is why lenders like contingency built into the budget. If costs overrun you may need to fund the difference yourself or apply to increase the loan, which is not guaranteed. Planning for it at the start is far easier than solving it halfway up.
That is between you and the work being done rather than a lending question, but it matters to your budget. If you have to move out, rent or accommodation costs need to sit alongside the loan repayments in the plan.
Nothing. The lender pays me once your loan settles, and construction lending is no different in that respect.
