Presenting a Construction Loan Deal to a Lender: What Brokers Should Include

Key takeaways

• Credit assesses the borrower and the build: the contract, the builder, the valuation and the contingency matter as much as income.
• Show the draw schedule: on an illustrative $450,000 land loan plus a $650,000 contract at 7%, interest to practical completion is $53,492.
• APRA's serviceability buffer was 3 percentage points at its 28 May 2026 release; at an illustrative 7% that means assessing repayments at 10%.
• Out-of-contract items - driveway, fencing, landscaping, window coverings - need quotes and funds, or the budget and the valuation will not line up.
• A fixed-price contract with a licensed, insured builder is the simplest construction deal to present; owner-builder and cost-plus deals need far more evidence.
• Pre-empt the questions: explain every gap, variation and unusual income source in the summary, not after the first credit query.

What does a lender need to see in a construction loan deal?

A construction loan is drawn in stages as the build progresses, so the lender is lending against something that does not exist yet. Credit therefore needs evidence that the build is fully specified, fully priced and fully funded, by a builder who can finish it.

Our home loan documents checklist covers the borrower side; the table above is the build side most submissions underprepare.

How do you show the draw schedule and the interest cost?

Credit wants to see that the borrower can carry interest during the build, which on most construction loans is charged only on the amount drawn. Lay out the schedule. For illustration: a $450,000 land loan already drawn, a $650,000 fixed-price contract, a 7% rate (an example, not an offer) and a 12-month build. Stage percentages vary by contract and state.

The draws sum to $650,000. Interest charged over the 12 months to practical completion totals $53,492 - two months at each of the first three balances, then three months at each of the next two. The construction progress draw calculator builds the same schedule for any contract, and our guide to how construction loan progress payments work is a useful explainer to send the client.

If the client is renting while they build, add the rent. At an illustrative $3,000 a month, their peak monthly outgoing in the final quarter is about $8,848 before living costs - a number credit will want to see covered.

How do you present serviceability?

For a regulated owner-occupier or investment construction loan, the lender will assess repayments at a buffer above the actual rate. APRA's 28 May 2026 macroprudential release kept the serviceability buffer at 3 percentage points for the banks it regulates. On the illustrative $1.1 million loan over 30 years, principal and interest at 7% is $7,318 a month; assessed at 10% it is $9,653, a gap of $2,335 a month.

Present both figures, plus the build-period cost from the draw schedule, and show where the surplus comes from. ASIC's page on responsible lending sets out what sits under the assessment: making reasonable inquiries, taking reasonable steps to verify the consumer's financial situation, and assessing whether the credit contract would be unsuitable. Our guides to stress-testing a budget at plus 3% and why borrowing power varies between lenders help explain to a client why two lenders give different answers.

For a business-purpose construction loan - a company building a warehouse to occupy, say - the test shifts to cash flow cover of the business or the lease income, but the build evidence below stays the same.

How should contingency and out-of-contract costs be shown?

The valuer values a finished home; the contract may not deliver one. Close the gap in the submission with a full build budget.

The out-of-contract items total $45,000; with the contingency the client needs $77,500 of evidenced cash on top of the loan. Contingency appetite varies by lender and contract type - a cost-plus contract or an owner-builder project usually needs a larger buffer. Many lenders also want the client's own contribution spent before the first progress draw, so show when the cash goes in.

Cost pressure is real: the ABS's producer price indexes recorded higher building construction output prices in the June 2026 quarter. A contract signed months ago with escalation clauses deserves a sentence of explanation in the summary.

How do you present the builder?

The builder is half the credit risk. A one-paragraph builder profile in the submission saves a round of questions:

• Licence number and class, checked on the state register, and the entity that holds it.
• Years trading and number of similar homes completed, with addresses where possible.
• An ASIC company search through ASIC's registers, including any external administration history of the company or its directors.
• Insurance certificates: home warranty or domestic building insurance where the state requires it, contract works and public liability.
• Contract type, the progress payment schedule and any escalation clause.
• Current workload, if known - a builder taking on far more than usual is a flag.

Owner-builder deals need more again: the owner-builder permit, the trade quotes for every stage, the owner's building experience and a project manager. Many lenders do not offer construction loans to owner-builders at all, and those that do usually want a lower LVR and a larger contingency. Set the client's expectations before you package it.

Whatever the contract type, confirm the builder will accept the lender's progress payment process - a valuer or QS inspection before each draw - because a builder who expects payment on invoice alone will stall the job at the first stage.

What does a construction deal summary look like?

One page, every number reconciled to the attachments. An illustrative example:

$1.1 million divided by $1,420,000 is 77.5%. The risks line is where a good summary earns its keep: name the weakness yourself, with the evidence that answers it.

How do you pre-empt credit's questions?

Most credit queries on construction deals are predictable. Answer them in the summary:

1. Variations: are any signed or expected, and who pays?
2. Program: does the build finish before any fixed-rate or interest-only period ends?
3. Land: is it settled, and are there easements or covenants affecting the build?
4. Permits: are the building permit and any development approval in hand, and are conditions costed?
5. Income: any recent job change, probation period, parental leave or self-employed add-backs explained.
6. Cash: where the client's contribution comes from, and that it is still there.
7. End state: what the loan becomes at completion, and the repayment at that point.

For regulated deals, the file also needs to show why this lender and this structure suit the client: the best interests duty in Part 3-5A of the National Credit Act, explained in ASIC's RG 273, governs the recommendation as much as the submission. Record the alternatives you compared and why they did not fit. When you are building a pipeline of construction work, Finance Providers on ADS can ask about construction loan requests borrowers post.

Frequently asked questions

What documents do lenders need for a construction loan?

The signed fixed-price building contract with its progress payment schedule, plans and specifications, the building permit and any development approval, the builder's licence and insurance, quotes for out-of-contract items, the land contract and title, income and expense evidence, and evidence of the client's cash contribution. The lender will order an as-if-complete valuation.

How is interest charged on a construction loan?

Usually only on the amount drawn, so it builds as each progress payment is made. In the illustrative example, a $450,000 land loan plus a $650,000 contract at 7% accrues $53,492 of interest over the 12 months to practical completion, with the monthly amount rising from $2,815 to $5,848 before the final draw.

Do lenders assess construction loan serviceability at a buffer?

For regulated home lending, yes. APRA kept its serviceability buffer at 3 percentage points in its 28 May 2026 release, so a loan at an illustrative 7% is assessed at about 10%. On $1.1 million over 30 years that lifts the assessed repayment from $7,318 to $9,653 a month. Lenders outside APRA's remit set their own buffers.

How much contingency do lenders want on a construction loan?

It varies by lender and contract type, so there is no single figure. A fixed-price contract with a licensed builder needs less than a cost-plus or owner-builder project. The illustrative example uses 5% of the contract, $32,500, plus $45,000 of quoted out-of-contract items, all funded from evidenced client cash.

Is a construction loan sized on the land value or the finished home?

Lenders look at both: the land as it is, and the home as if complete under the contract, plans and specifications. The facility is usually sized against the as-if-complete value, so if the valuer comes in below the client's expectation, the client funds the difference. In the example, $1.1 million against a $1.42 million as-if-complete value is an LVR of 77.5%.

Can an owner-builder get a construction loan?

Some lenders offer them, many do not. Those that do usually want the owner-builder permit, trade quotes for every stage, evidence of building experience, a lower LVR and a larger contingency. Explain the client's experience and the project management plan in the summary, and set expectations about choice and pricing early.

Related reading

• Construction Loans: How Progress Payments Work
• The Home Loan Documents Checklist
• Stress-Testing Your Own Budget at +3%

Sources

• APRA maintains current macroprudential policy settings (28 May 2026) — Australian Prudential Regulation Authority
• Responsible lending — Australian Securities and Investments Commission
• Producer Price Indexes, Australia (building construction output prices) — Australian Bureau of Statistics
• Search ASIC registers — Australian Securities and Investments Commission
• RG 273 Mortgage brokers: Best interests duty — Australian Securities and Investments Commission