Top Strategies to Fund a Custom Home Build in Brighton

A construction loan should be matched to your building contract before you sign it. The loan releases money in stages, so the way your builder bills and the way your lender pays need to line up.

For Brighton locals planning to build a dream home, that match shapes your cash flow for the whole build. This article covers how staged funding works, what a lender looks at, and what is changing in Victorian building contracts.

How Does a Construction Loan Work for a Custom Home?

A construction loan releases funds in stages as your builder completes work, rather than paying out the full amount on day one. Interest is typically charged on the amount drawn, but the repayment type during the build is set by each lender, so confirm it before you commit.

The trade-off is that repayments rise with each stage, and your budget needs room for that. Lender terms differ on the number of drawdowns, the repayment type during the build, time limits, inspection requirements and fees. These are set by each lender, so they are worth comparing before you commit. Our construction loans page outlines the options we can arrange from lenders across Australia.

Victorian Progress Payments: How the Schedule Shapes Your Drawdowns

Under the current Victorian rules, your deposit is capped at 5 per cent for contracts of $20,000 or more, and the remaining payments are made for completed stages. Consumer Affairs Victoria sets out the usual schedules for each type of contract.

For a contract covering all stages, the usual schedule is 10 per cent at base, 15 per cent at frame, 35 per cent at lock-up and 25 per cent at fixing. Consumer Affairs Victoria also advises that a different schedule needs legal advice, and that insurance may not cover work paid for before it is completed. It also advises that you should not pay a deposit until the builder gives you a certificate of currency for the property.

Your lender will usually release each progress payment after the stage is complete. Inspection requirements and fees vary by lender, so ask about them early and confirm them before you sign.

Example: How Interest Builds Up During the Build

Interest during a build grows as each stage is drawn, so your monthly cost at lock-up is much higher than at base. Consider a couple who own land in Brighton and sign a fixed price contract for a custom home. They choose a loan with interest-only repayments during construction.

At the illustrative rate of 6.75% p.a., once $400,000 has been drawn the interest is about $27,000 a year, or $2,250 a month. When draws reach $800,000, the interest is about $54,000 a year, or $4,500 a month. The couple knew this from the start. They set aside a buffer for the later stages and kept their current rent and living costs separate from the build budget.

The outcome was no surprises at lock-up or fixing. Their repayments rose in step with their cash flow plan, and the build finished with a buffer still in place. Your own figures will depend on your lender, your loan amount and your actual rate, so use a calculator and speak with us about your numbers.

How Do Lenders Assess a Construction Loan Application?

Lenders assess a construction loan application on your ability to repay, and banks regulated by APRA must assess new borrowers at a rate at least 3 percentage points above the loan rate. Ask your lender how it assesses the loan amount.

There is one point in your favour. APRA's debt-to-income limit does not apply to finance for the construction of new dwellings. That does not remove the serviceability test, so your income and debts still need to support the loan. You can get a sense of your position on our borrowing capacity page before you meet with a builder.

The lender will also want your plans, your building contract and approvals such as council approval in place. If you are building in Brighton, our team at Mortgage Broker Brighton can help you gather what is needed. Brighton sits within the City of Bayside, and you can read more on our City of Bayside page.

What Happens After the Build Finishes?

When the build is complete, your loan will move to the repayment arrangement set out in your loan contract. The conversion terms depend on the lender and your loan contract, so ask how and when the switch happens, and whether any fee applies.

This is also the time to review your rate and structure. If you chose interest-only during construction, principal and interest repayments after that period are assessed and calculated over the remaining term, so they are usually higher than the interest-only repayments.

Victorian Building Contract Changes From 31 March 2027

Victoria has deferred changes to domestic building contracts to 31 March 2027, so the current deposit and payment rules apply until then. Under the amended Act, deposit limits and progress payment stages can be set by regulation, with payments for completed work needing to be proportionate.

The Victorian Government has consulted on proposed regulations, but final regulations had not been confirmed at the time of writing. Details are subject to change. If your contract could be signed close to that date, ask your solicitor or building adviser which rules will apply to you.

Do First Home Buyers Get a Grant When Building?

Some first home buyers building a new home in Victoria may be eligible for a $10,000 First Home Owner Grant, where the new home's value is up to $750,000. Eligibility rules apply, so check the details with the State Revenue Office before you rely on it.

If this is your first purchase, our first home buyers page explains how we approach the process, and we can check how any grant fits with your lending timeline.

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