Construction Loan Progress Payments: How Staged Drawdowns Work
A construction loan does not hand you the full amount on day one. It releases money in stages, known as progress payments or progressive drawdowns.
The lender pays your builder as each stage finishes, usually after an inspection or valuation confirms the work is done. That protects you and the lender, but it also creates a cash-flow pattern many first-time builders do not expect.
Below you will find how the drawdowns work, the stage limits Victorian law sets and how to protect yourself if your builder runs into trouble. If you are still deciding whether to build, our guide to turning new-build dreams into reality is a good place to start.
General information only. This does not consider your objectives, financial situation or needs, and is not financial or credit advice. Please get advice tailored to your situation before acting.
How construction loans work
A construction loan funds a build in steps rather than as one lump sum. Each step lines up with a stage of the build.
- You are approved for the build cost, plus the land if you are buying it too.
- The builder issues a progress claim when a stage is finished.
- You sign off the claim and the lender arranges an inspection or valuation.
- Once the work is confirmed, the lender pays the builder directly.
You never hold the bulk of the money. It moves from lender to builder as the house goes up.
A standard home loan settles once, while a construction loan settles in pieces. Our rundown of the different types of home loans shows where it sits alongside other structures.
The build stages in order
Victorian home building contracts are governed by the Domestic Building Contracts Act 1995. For a full house build, the payments usually follow these milestones:
- Deposit – paid when you sign the contract.
- Base – footings, stumps or the concrete slab completed.
- Frame – frame completed and approved by a building surveyor.
- Lock-up – external walls, roof, external doors and windows in place.
- Fixing – internal linings, doors, cabinets and fixtures installed.
- Completion – work finished and the home ready for handover.
Other states use different labels. In New South Wales, for example, contracts often refer to an enclosed stage in place of lock-up.
How much a builder can charge at each stage in Victoria
Section 40 of the Act caps what a builder can ask for at each stage. For a contract covering all stages, the limits are set as a share of the contract price.
| Stage | Maximum payment |
|---|---|
| Deposit | 5% (contracts of $20,000 or more) |
| Base | 10% |
| Frame | 15% |
| Lock-up | 35% |
| Fixing | 25% |
| Completion | The balance, around 10% |
The deposit cap rises to 10% for contracts under $20,000. Contracts that only go to lock-up or fixing stage have their own, higher percentages.
A builder can use a different payment schedule only if both parties formally agree in the way the regulations require. That includes a warning notice you must sign, so read it closely and have a solicitor check the contract first.
Victoria has also passed the Domestic Building Contracts Amendment Act 2025, which is due to start by 1 December 2026. It allows new payment limits to be set by regulation, so check the rules that apply on the date you sign.
Consumer Affairs Victoria explains the current limits on its deposits and payments page.
Why repayments climb during the build
During construction most lenders charge interest only on the amount drawn so far. Early on you have drawn a small slice, so repayments are low.
Each stage adds to the balance and your repayment rises with it. By completion you are paying interest on the full loan, and it then usually switches to principal and interest.
Many people keep renting while they build, so rent and a growing loan repayment overlap. That is why it helps to understand how lenders calculate your borrowing power before you sign a build contract.
Worked example: a $600,000 build
Assume a $600,000 construction loan that funds every stage, including the deposit, at an assumed variable rate of 6.9% a year. Real rates vary by lender and change often, so treat this as an illustration only.
| Stage | Total drawn | Monthly interest-only repayment |
|---|---|---|
| Deposit (5%) | $30,000 | $173 |
| Base (10%) | $90,000 | $518 |
| Frame (15%) | $180,000 | $1,035 |
| Lock-up (35%) | $390,000 | $2,243 |
| Fixing (25%) | $540,000 | $3,105 |
| Completion (10%) | $600,000 | $3,450 |
The monthly repayment grows from about $173 to $3,450 over the build. Once the loan switches to principal and interest over 30 years, the same rate puts it at about $3,952 a month.
If you are paying rent as well, the later stages are where budgets get tight. Plan around the completion figure from the start, and allow for the other hidden costs of owning a home.
What happens if a stage values low
Before each payment, the lender’s valuer checks the work matches the claim. If the valuer thinks a stage is not finished, the lender can hold back some or all of that payment.
A low valuation of the finished home can also leave a gap between the loan and what you owe the builder. You would normally need to cover that gap from your own funds.
- Keep a cash buffer on top of your deposit and costs.
- Ask how each lender values homes under construction, especially in new estates with lots of similar stock.
- Budget for contract variations, since extra work is not always covered by the approved loan.
The same risk shows up in off the plan purchases, and our article on valuation shortfalls at settlement covers it in more detail.
House-and-land packages
With a house-and-land package, the land usually settles first under a separate contract of sale. The build contract then starts and the progress payments follow the schedule above.
Some lenders treat this as one facility with the land as the first drawdown. Others set it up as separate loans, so ask how interest and repayments will run while the land sits vacant.
If the land has not yet titled, settlement can be months away and your pre-approval may need renewing. Our guide to the contract of sale in Victoria covers the land side of the deal.
The First Home Owner Grant on a new build
In Victoria, the First Home Owner Grant is $10,000 for an eligible new home valued up to $750,000. At least one applicant must live in it for 12 months, starting within 12 months of completion.
If you need the grant for your first progress payment, you must apply through an approved agent, which is usually your lender. Ask your lender early how it values your land and build against the cap and when the grant will be paid.
The State Revenue Office sets out the full eligibility rules.
Protecting yourself if the builder fails
Builder collapses have been front of mind since Porter Davis Homes went into liquidation in March 2023. Around 1,700 homes in Victoria and Queensland were affected.
ASIC data shows 3,435 construction companies entered external administration nationally in 2025-26, down 4.5% on the year before. Victoria accounted for 984 of them, so the risk remains real.
Victoria’s Home Warranty scheme
From 1 July 2026, Victoria replaced Domestic Building Insurance with a first resort Home Warranty scheme. It is run by the Building and Plumbing Commission (BPC), which replaced the Victorian Building Authority.
For contracts signed on or after 1 July 2026, the main changes are:
- You can seek help when work is incomplete, defective or non-compliant and the builder fails or refuses to fix it.
- The old cover generally applied only if the builder had died, disappeared or become insolvent.
- Cover is required for work over $20,000, up from $16,000.
- Total assistance is up to $400,000 per home, up from $300,000, subject to limits and exclusions.
Work already covered by Domestic Building Insurance stays under that scheme. The BPC Home Warranty page has the detail, and our guide to building insurance before settlement explains how it fits with your own home insurance.
A checklist before you pay anything
- Get the certificate of Home Warranty or Domestic Building Insurance before you pay the deposit.
- Check the builder’s registration on the BPC website.
- Compare each progress claim against the stage definitions in your contract.
- Choose a lender that inspects each stage before releasing funds.
- Keep every progress claim, inspection report and invoice.
Paying ahead of the work is the main risk to avoid. If you have paid more than the Act allows, a court can order the builder to refund the excess.
Construction loan or standard home loan
| Feature | Construction loan | Standard home loan |
|---|---|---|
| Funds released | In stages | At one settlement |
| Repayments during the build | Usually interest only, rising with each drawdown | Not applicable |
| Valuations | Before each drawdown and at completion | Usually one before approval |
| After completion | Usually switches to principal and interest | Principal and interest or interest only from the start |
The right structure depends on whether you are building or buying an established home. Lender policies on drawdowns, valuations and the interest-only period also differ.
Where a broker fits in
Construction lending has more moving parts than a standard purchase. Contracts, stage valuations, insurance and lender drawdown rules all interact, which is one reason most buyers now use a broker.
We compare how lenders handle drawdowns and valuations, then match the loan to your build and cash flow. Talk to us before you sign the build contract so the finance and the payment schedule line up.
Rates, thresholds and scheme rules are current as at September 2026 and change often. Check them before relying on them.
Frequently asked questions
How many progress payments does a construction loan have?
A full house build in Victoria typically has six: deposit, base, frame, lock-up, fixing and completion. Contracts covering only part of the build have fewer stages, and lenders may add a land drawdown at the start.
Can I pay a builder more than the stage limits?
Only if you and the builder formally agree to a different schedule in the way the regulations require, including a signed warning notice. Get legal advice before agreeing to anything outside the standard limits.
Who pays for the inspection at each stage?
Many lenders charge a fee for each progress inspection, and some include a set number in their construction loan fees. Ask for the full fee schedule before you choose a lender.
What if my build takes longer than planned?
Your interest-only period may need extending, and you may carry rent and repayments for longer. Talk to your lender early, since extensions are assessed case by case.
Does Home Warranty cover my deposit if the builder never starts?
The Home Warranty scheme can cover lost deposits, subject to eligibility, limits and exclusions. Make sure you hold the certificate for your contract before you pay.
About The Author
Known to most as “Pato”, Andrew Paterson is an award-winning, Licensed Mortgage Broker with over 15 years’ experience in finance and real estate. He works with first home buyers, refinancers and upgraders, making the process clear, calm and practical.
He’s been a finalist for Best Regional Broker, Best Finance Broker and Thought Leader at the Better Business Awards. A lifelong learner and advocate for the industry, he speaks at national events and represents Aussiewide on the world stage internationally.
