Beginner's Guide to Construction Loan Fees

Construction loan fees add between $2,000 and $6,000 to the cost of building a new home, depending on the lender and the complexity of your project.

These fees exist because lenders manage multiple inspections and progressive drawdowns throughout your build, rather than advancing the full loan amount at settlement. Each progress payment requires verification that the work has been completed to an acceptable standard, which creates administration and inspection costs that standard home loans do not carry. If you are planning to build in Kingston or elsewhere in the ACT, understanding these fees during the application stage allows you to budget accurately and avoid surprises when construction begins.

What Construction Loan Fees Cover

Construction loan fees pay for the lender's inspection process and the administrative work involved in releasing funds progressively. When you draw down on a construction loan, the lender typically arranges for a quantity surveyor or valuer to attend the site and confirm that the stage of work claimed by your builder has been completed. The lender then releases the corresponding payment from your loan amount. This process repeats at each stage of construction, often five or six times over the course of a build.

Consider a borrower building a custom home in Kingston who has a fixed price building contract for $650,000. The lender may charge a progressive drawing fee of $350 per inspection, plus an establishment fee of $600. With six drawdowns scheduled across the build, the total inspection fees reach $2,100, bringing the upfront cost to $2,700 before the first payment is released to the builder.

Progressive Drawing Fees and How They Apply

Progressive drawing fees are charged each time the lender releases a payment to your builder. Some lenders bundle these fees into a flat construction loan administration fee, while others charge per drawdown. The structure varies, but the outcome is similar: you pay for each inspection that triggers a progress payment.

If your builder operates on a five-stage payment schedule, the lender will arrange five inspections and charge accordingly. If you are completing an owner builder project with more frequent drawdowns to pay sub-contractors such as plumbers and electricians, the number of inspections increases and the total fee rises. Lenders who charge per drawdown typically quote between $300 and $500 per inspection, though some impose a flat fee of $1,500 to $2,500 regardless of the number of stages.

How Land and Construction Packages Affect Fee Structures

When you finance a land and construction package, the lender may require two separate settlements: one for the land purchase and another for the construction phase. This can introduce additional application fees or split loan fees, particularly if the land component is held on a separate loan account until construction begins. Some lenders waive the second application fee if both the land and construction loans are approved together, while others treat each as a distinct transaction.

In our experience, borrowers purchasing a house and land package in Kingston often underestimate the settlement costs on the land component. If the land settles before council approval is finalised, you may be required to make repayments on the land loan while waiting for the development application to be processed. Confirming the fee structure and settlement sequence during the construction loan application stage prevents cash flow issues once you have committed to the purchase.

Interest Costs During Construction

While not a fee in the traditional sense, interest charges during construction function as an additional cost that many borrowers do not anticipate. Lenders only charge interest on the amount drawn down at each stage, rather than the full loan amount. However, because no principal repayments are typically required during construction, the interest capitalises and adds to your total debt.

If you have drawn $200,000 at the slab stage and the current variable rate is 6.5%, you would pay roughly $1,083 per month in interest. As each subsequent drawdown occurs, the interest cost increases. By the time the build is complete, you may have accumulated several thousand dollars in capitalised interest, which is then added to the final loan balance and repaid over the life of the loan. Some lenders offer interest-only repayment options during construction, which allows you to service the interest as you go rather than capitalising it, though this requires sufficient cash flow during the build period.

Valuation and Inspection Costs

Most lenders require an initial valuation before approving a construction loan, and this cost is usually passed on to the borrower. The valuation assesses the value of the completed home based on the council plans and the fixed price building contract. If you are building a custom design rather than a project home, the valuation fee may be higher due to the additional complexity involved in assessing a one-off design.

Valuation fees in the ACT typically range from $300 to $800, depending on the property type and location. If your lender requires a second valuation after practical completion, that cost is also your responsibility. Some lenders include one valuation in their loan package but charge separately for subsequent inspections or progress valuations.

How Fixed Price Contracts Influence Lender Fees

Lenders prefer fixed price building contracts because they reduce the risk of cost overruns and incomplete builds. When you present a cost plus contract or an owner builder arrangement, the lender often applies additional scrutiny, which can result in higher fees or more frequent inspections. A fixed price contract provides certainty around the final loan amount, which allows the lender to streamline the approval and drawdown process.

If you are considering an owner builder project in Kingston, expect the lender to require detailed quotes from registered sub-contractors, a comprehensive project plan, and potentially a larger deposit. Some lenders charge a higher establishment fee or a risk-based margin on the interest rate for owner builder finance, reflecting the increased complexity and default risk associated with managing the build yourself.

Comparing Fee Structures Across Lenders

Not all lenders charge construction loan fees in the same way. Some impose a single upfront administration fee, others charge per drawdown, and a few bundle the costs into the interest rate itself. When comparing options, focus on the total cost over the life of the build rather than individual line items. A lender with no establishment fee but high per-drawdown charges may end up costing more than one with a flat fee structure, depending on how many progress payments your builder requires.

A borrower financing a renovation in Kingston through a home improvement loan with four scheduled drawdowns would pay $1,400 in progressive drawing fees at $350 per inspection with one lender, but only $1,200 as a flat fee with another. The difference is modest, but it compounds when combined with valuation fees, application fees, and capitalised interest. Asking your broker to provide a side-by-side comparison of total fees across multiple lenders clarifies which option delivers the lowest overall cost.

What Happens If Construction Delays Occur

If your build is delayed and you do not commence building within the set period from the disclosure date, some lenders may charge an extension fee or require a new valuation. Delays caused by council approval, weather, or builder availability can extend the construction timeline by several months, and lenders typically allow a 12-month window from loan approval to first drawdown. If that window expires, the lender may reassess the loan based on current property values and interest rates, which can introduce additional costs or require a fresh application.

Planning for contingencies and maintaining regular communication with your lender reduces the likelihood of extension fees. If a delay is unavoidable, notifying the lender early allows them to extend the approval period without requiring a full reapplication, though some lenders still impose a fee for this service.

Construction loan fees are a necessary part of financing a new build, but understanding what you are paying for and how different lenders structure their charges allows you to make an informed decision. If you are building in Kingston or planning a land and construction package elsewhere in the ACT, call one of our team or book an appointment at a time that works for you to discuss which lenders offer the most suitable fee structures for your project.

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