Thinking about building a home or tackling a major renovation in Melbourne?
If so, you’ve probably come across the term construction loan – but what exactly is it, how does it work, and what should you know before applying?
This guide by our expert broker team at Money Bar explains construction finance in Australia, with a Melbourne lens so you can plan with clarity and avoid costly missteps.
What Is a Construction Loan?
A construction loan is a specialised type of home loan designed to fund building projects or large-scale renovations. Unlike a standard mortgage, where the full amount is released upfront, construction loans are drawn down in stages – known as progress payments – that align with each phase of the build.
This staged approach helps protect both you and the lender by ensuring funds are only released as verified work is completed.
How Do Construction Loans Work in Melbourne?
The process for construction loans in Victoria typically includes:
- Application & Pre-Approval Your mortgage broker assesses your income, equity, and build plans to help you secure conditional approval.
- Builder Documentation You’ll need a fixed-price contract, council-approved plans, and insurance from a licensed Victorian builder.
- Property Valuation The lender orders a valuation based on the completed project’s anticipated market value.
- Loan Approval & Settlement Once approved, the construction loan is ready for staged drawdowns.
- Progress Payments Payments are made in tranches (slab, frame, lock-up, etc.) after inspections are signed off.
- Loan Conversion Once construction is complete, the loan typically transitions into a standard principal and interest mortgage. See our borrowing calculators for more information.
For a more detailed understanding or assistance with the construction loan process in Melbourne, consider consulting with a financial advisor or mortgage specialist familiar with local regulations and lender requirements.
Who’s Eligible for a Construction Loan?
Eligibility for construction loans in Australia varies by lender, but generally, you’ll need:
- A deposit or equity of at least 5–20%: Some lenders may require up to 30% for higher-risk projects or owner-builder applications.
- A fixed-price contract with a licensed builder: This provides cost certainty and is preferred by most lenders.
- Council-approved building plans and permits: Essential for lender assessment and loan approval.
- Evidence of stable income and manageable existing debts: Lenders assess your ability to service the loan based on income and financial obligations.
- A clean credit history: A strong credit score increases your chances of approval and may lead to better loan terms.
❗Owner builder construction loans are available, but come with stricter conditions and higher risks.
Construction Loan Rates & Fees in Australia
Construction loan rates in Australia can be slightly higher than standard home loans, due to increased lender risk. Many lenders offer interest only repayments during the build to help with cash flow.
Common fees include:
- Valuation and inspection fees (approx. $200–$400 per stage)
- Lender legal or documentation costs
- Council approval-related costs
Why Use a Construction Loan Broker?
Construction finance is more complex than regular home loans and can directly affect your build timeline, cash flow, and final costs.
At Money Bar, we:
- Help you understand if a construction loan suits your project
- Compare policies across banks and non-bank lenders
- Secure competitive interest rates and flexible repayment structures
- Handle all paperwork and progress payment coordination
- Act as your finance partner throughout the build
Final Word: Don’t Just Find a Loan – Find a Strategy
Getting the right construction loan isn’t just about approval. It’s about shaping your build journey with less stress, better cash flow, and stronger lender fit.
We specialise in construction loans for Melbourne builds and we’re here to guide you every step of the way.
Ready to chat about your build plans? Click below for a no-pressure, 15-minute strategy call to help you get started.
👉 Book a free 15-minute strategy call
FAQs: Construction Loans Melbourne
Do construction loans cover landscaping and driveways?
Not always. Some lenders allow funds for basic landscaping and driveways in the final stage but pools, fences, or external features often need to be funded separately.
Can I use equity in my existing home instead of a deposit?
Yes – if you have enough usable equity, it can replace the need for upfront cash. A broker can calculate your usable equity position.
What happens if my builder increases the contract price mid-build?
If the loan has already been approved based on a fixed-price contract, any increase may require a loan reassessment – or additional funds from you.
Can I apply for a construction loan for renovations only?
Yes. Renovation construction loans are common – especially for major structural works or extensions – but lender requirements still apply.
What if I want to act as an owner-builder?
Owner-builder construction loans are possible, but much harder to secure. Expect stricter conditions, higher deposit requirements, and limited lender options.
The information provided on this website is of a general nature and does not constitute financial, legal, or tax advice. It has been prepared without taking into account your objectives, financial situation, or needs. Before acting on any information, you should consider its appropriateness in light of your personal circumstances and consult with a qualified professional. While we strive to ensure the accuracy and currency of the information, we make no guarantees and accept no liability for any loss or damage arising from reliance on this information.
By Dean Alateras, Mortgage Broker at Money Bar
Dean is a licensed mortgage broker based in Melbourne, passionate about helping clients navigate the complexities of home financing. As a Credit Representative (CRN 55438) of Connective Credit Services Pty Ltd (ACL 389328) and a member of the Mortgage & Finance Association of Australia (MFAA), Dean is committed to providing clear, honest, and tailored advice to each client’s unique financial journey.