Can You Get a Construction Loan If the Builder Hasn’t Started Yet?

Getting a Construction Loan When the Builder Hasn’t Started Yet

Yes, you can usually get a construction loan before the builder has started. In fact, this is normally the best time to arrange construction finance.

Most lenders prefer the loan to be approved before construction begins because they can review the land, building contract, builder, plans, specifications, progress payment schedule, valuation, council approvals, insurance and funds to complete before any work is done.

If the builder has already started, the loan can become more complicated. Some lenders will not accept partially completed construction, especially if another lender funded earlier stages, if work cannot be verified, or if the same builder is not completing the remaining works.

This guide explains how lenders assess construction loans before the builder has started, based on current policy research.

Can you get a construction loan before the builder starts?

Yes.

A construction loan is commonly arranged before building begins.

A lender may approve the loan before the builder starts if:

• the land is acceptable security
• the building contract is signed
• the builder is licensed or registered
• the plans and specifications are available
• the progress payment schedule is acceptable
• the valuation supports the completed property
• funds to complete can be verified
• council approval or building permit is available, or will be provided before drawdown
• insurance requirements can be met
• the borrower can afford the loan
• the LVR fits lender policy

This is usually cleaner than applying after construction has already begun.

Is it better to get finance before construction starts?

Yes.

It is usually much safer to arrange construction finance before work starts.

This helps avoid problems such as:

• the lender refusing the building contract
• the lender not accepting the progress payment schedule
• the valuation being lower than expected
• the borrower having insufficient funds to complete
• the builder asking for payment before the lender is ready
• work being completed before the lender can inspect it
• the project being treated as partially complete
• difficulty refinancing from another lender during construction

A construction loan should ideally be approved and ready before the first major construction stage.

Why do lenders prefer construction not to have started?

Lenders prefer to assess the project before work begins because the risk is clearer.

Before construction starts, the lender can assess:

• the current land value
• the proposed completed value
• the total build cost
• the builder contract
• progress payment stages
• borrower contribution
• construction timeframe
• council approval
• builder insurance
• warranty insurance
• funds to complete

Once work has already started, the lender must also assess what has already been done, whether it was done correctly, who paid for it, whether it is compliant, and what remains to complete.

Can you get pre-approved before the builder starts?

Yes, but pre-approval is not the same as full construction approval.

A lender may pre-assess your borrowing power before construction begins.

However, full approval usually needs the final construction documents.

A pre-approval may assess:

• income
• debts
• deposit
• savings
• credit conduct
• broad borrowing capacity

Full construction approval usually also requires:

• land contract or title
• fixed-price building contract
• plans and specifications
• builder licence
• progress payment schedule
• valuation as if complete
• funds-to-complete evidence
• council approval or permit, where required

A pre-approval should not be treated as permission to start building.

Can you get approval before council approval is issued?

Possibly, but it depends on the lender.

Some lenders may issue conditional approval before final council approval, development approval, construction certificate or building permit is available.

However, the lender may not release construction funds until the required approvals are provided.

This matters because council or certifier requirements can change:

• build cost
• design
• site works
• drainage
• bushfire requirements
• flood requirements
• engineering
• valuation
• construction timeframe

If approvals are still pending, the loan may remain conditional.

Can the builder start before council approval?

Usually, no.

Construction should not start until the required approvals are in place.

If work starts without approval, the lender may be concerned about:

• illegal or non-compliant works
• council enforcement action
• valuation risk
• insurance issues
• inability to obtain occupancy certificate
• incomplete or defective security
• future resale problems

A lender is unlikely to be comfortable funding work that has started without required approvals.

Does the lender need to issue permission before the builder starts?

Often, yes in practice.

Some lenders follow a formal process where they confirm the build can commence after required documents are reviewed.

This may involve checking:

• the building contract is fully executed
• the owner names match the borrowers or security providers
• the property address matches the security
• the progress payment schedule is acceptable
• the builder is licensed
• required insurance is provided
• approvals are in place
• valuation is completed

The builder should not start simply because the loan application has been lodged.

What is a construction commencement letter?

Some lenders issue a commencement letter or similar confirmation once construction documents are checked.

This tells the builder and borrower that the lender has reviewed the required documents and the construction loan is ready for the build to commence.

The exact name varies by lender.

It may be called:

• commencement letter
• authority to commence
• construction commencement confirmation
• construction loan approval confirmation
• first draw readiness confirmation

Before the builder starts, ask your broker whether the lender has issued the required construction commencement confirmation.

What documents are usually needed before the builder starts?

Documents may include:

• land contract or title
• building contract
• fixed-price building contract
• plans and specifications
• progress payment schedule
• builder licence
• builder insurance
• home warranty or domestic building insurance
• council approval
• building permit
• development approval, if required
• construction certificate, if required
• valuation as if complete
• evidence of borrower contribution
• funds-to-complete evidence
• mortgage documents
• First Home Owner Grant approval, if applicable
• government guarantee documents, if applicable

The lender may not need every document for conditional approval, but it usually needs them before construction funds are released.

Does the building contract need to be signed before the builder starts?

Yes, it should be.

The lender will usually require a fully executed building contract.

The contract should show:

• borrower names
• builder name
• property address
• fixed contract price
• contract date
• signatures from borrower and builder
• progress payment stages
• inclusions and exclusions
• plans and specifications
• start and completion terms

If the contract is unsigned or incomplete, the lender may not approve the construction facility.

Related research: Can You Buy Land First and Add a Building Contract Later Under the 5% Deposit Scheme?

Does the builder need to be licensed before approval?

Usually, yes.

Most construction lenders prefer or require a licensed or registered builder.

The lender may ask for:

• builder licence number
• registration details
• builder insurance
• warranty or domestic building insurance
• construction contract
• progress payment schedule
• builder contact details

If the builder is not licensed, the loan may be treated as owner-builder or declined.

Can you use a fixed-price contract if the builder hasn’t started?

Yes, and this is usually preferred.

A fixed-price building contract is often the strongest structure because it gives the lender certainty around:

• total build cost
• payment stages
• borrower contribution
• valuation assumptions
• funds to complete
• completion risk
• builder obligations

The best time to arrange fixed-price construction finance is before the builder starts work.

Can you use a cost-plus contract before the builder starts?

Possibly, but it is harder.

A cost-plus contract means the final build cost can change based on actual labour, material and builder costs.

Some lenders do not accept cost-plus contracts. Others may consider them at lower LVRs or with stronger evidence.

The lender may require:

• larger cash buffer
• lower LVR
• quantity surveyor report
• detailed cost estimate
• contingency
• stronger funds-to-complete evidence
• no reliance on mortgage insurance

If the builder has not started yet, you may still have time to change to a lender-friendly contract structure.

Can you get a loan if the builder has not given a final price yet?

You may be able to start the finance process, but full construction approval usually needs final pricing.

A builder estimate may help with early planning, but a lender usually needs a signed contract before formal approval.

If the price is not final, the lender cannot properly confirm:

• total project cost
• LVR
• funds to complete
• borrower contribution
• progress payment amounts
• valuation assumptions
• mortgage insurance position

It is better to finalise pricing before the builder starts.

Can the builder start while the loan is still conditional?

This can be risky.

Conditional approval means the lender still needs something before the loan is fully ready.

Conditions may include:

• valuation acceptance
• building contract review
• council approval
• insurance certificate
• mortgage documents
• evidence of funds
• mortgage insurance approval
• grant approval
• progress payment schedule review

If the builder starts before conditions are satisfied, you may be responsible for invoices the lender is not yet ready to fund.

Can the builder start before the loan settles?

Usually, this is risky and often not recommended.

The lender generally needs the loan settled and the mortgage in place before construction funds can be drawn.

If construction starts before settlement, issues may include:

• no lender security in place
• builder invoices due before funds are available
• incomplete inspection history
• mismatch between stage completed and approved drawdown
• lender refusing earlier works
• borrower needing to pay from savings

This is especially risky for low-deposit borrowers.

Can the builder start before land settlement?

Usually, no, unless you already own the land.

If you are buying land and building, construction usually cannot start until the land has settled and you are the legal owner.

The lender normally wants a mortgage over the land before construction begins.

Starting before land settlement can create legal and funding problems because you do not yet own the site.

Can the builder start if you already own the land?

Possibly, but finance should still be in place first.

Owning the land gives more control, but the lender still needs to approve the construction loan before work begins.

If you start work before approval, the project may become partially complete and harder to finance.

Even if you own the land outright, the lender may want to control progress payments and inspect stages from the beginning.

What happens if construction starts before the lender is ready?

Several things can go wrong.

The lender may:

• refuse to fund early stages
• require a new valuation
• require a progress inspection
• reduce the loan amount
• ask for evidence of all payments already made
• require the same builder to finish the works
• treat the property as partially complete
• decline if construction has commenced outside policy

The borrower may need to use savings to catch up or renegotiate with the builder.

Can a partially completed property be financed?

Sometimes, but it is harder.

Some lenders may consider partially completed construction only under construction loan parameters and only where the same builder who started the work will complete it.

Other lenders may decline partially complete properties, especially for standard loans.

The lender may ask:

• what stage is complete?
• who completed the work?
• was the builder licensed?
• did another lender fund it?
• are approvals in place?
• are inspections passed?
• what is the cost to complete?
• is there enough money to finish?
• is the same builder completing the works?

Partially completed construction is not the same as a normal pre-start construction loan.

What if construction has commenced in any form?

Some lenders treat this as a major policy issue.

Construction commenced may include:

• site works
• slab poured
• frame erected
• demolition started
• excavation completed
• retaining walls underway
• structural renovation started
• major materials installed
• builder already claiming progress stages

Even early work can change how the lender views the loan.

If work has started, tell your broker immediately.

What if only site preparation has started?

It depends on the lender and work completed.

Site preparation may include:

• clearing
• levelling
• excavation
• fencing
• temporary services
• drainage
• demolition
• retaining works
• earthworks

Some lenders may still consider this construction commenced.

The lender may need evidence of costs paid, approvals, current stage and what remains.

Do not assume “minor” site works are irrelevant.

What if only demolition has started?

Demolition can still affect finance.

If an existing dwelling is demolished before construction finance is ready, the property may now be valued as vacant land.

This can affect:

• LVR
• loan approval
• current lender consent
• insurance
• funds to complete
• refinance options
• valuation

Demolition should usually wait until the lender has approved the knockdown rebuild structure.

What if only the slab has been poured?

A poured slab usually means construction has clearly started.

The lender may need:

• progress inspection
• slab certificate, if available
• builder invoice
• evidence of payment
• approvals
• contract
• cost-to-complete calculation
• valuation update
• confirmation same builder will continue

Some lenders may decline because they do not want to take over partly completed construction.

What if the frame is already up?

This is more complex.

At frame stage, the lender may need to understand:

• quality of work
• stage completed
• invoices paid
• remaining works
• builder contract
• insurance
• inspections
• current value
• completed value
• funds to complete

Refinancing or arranging a new construction loan after frame stage can be difficult.

Can you refinance from another lender before the builder starts?

Yes, this can be possible.

If construction has not started, a new lender may be able to refinance the land loan and set up the construction facility.

The new lender will still assess:

• current land value
• existing loan payout
• building contract
• completed valuation
• LVR
• serviceability
• funds to complete
• builder documents

This is much easier than switching lenders after construction has started.

Can you refinance after construction has already started?

Usually, this is difficult.

A new lender may not want to take over because:

• previous stages may not be verifiable
• work quality may be uncertain
• cost to complete may be unclear
• builder disputes may exist
• inspections may be missing
• insurance may be unclear
• valuation is more difficult
• funds already paid may not align with the current stage

It is better to choose the right construction lender before the builder starts.

Can the same builder continue if you change lenders?

Possibly.

If construction has not started, changing lenders is usually simpler.

If construction has started, the new lender may require that the same builder who started the work completes the outstanding works.

This helps reduce risk because the builder remains responsible for the project.

If the builder has changed, the lender may need much more information or may decline.

Can you change builders before construction starts?

Yes, but the lender needs updated documents.

If you change builders before work begins, the lender may request:

• new building contract
• new builder licence
• new insurance
• new plans or specifications, if changed
• updated progress payment schedule
• updated valuation
• revised funds-to-complete calculation

This is manageable before work starts. It is much harder after work has begun.

Can you change builders after construction starts?

Possibly, but it is much harder.

The lender may need:

• termination evidence for the first builder
• new builder contract
• new cost-to-complete estimate
• defect or stage inspection
• insurance review
• new valuation
• legal documents
• explanation of why the builder changed

Some lenders may not accept the risk.

What if the builder has delayed starting?

Builder delays are common.

A lender may ask for updates if:

• approval is expiring
• valuation is expiring
• builder contract price has expired
• land settlement has been delayed
• insurance has expired
• construction timeframe is no longer accurate
• the first progress payment is delayed

A delay before commencement is usually easier to manage than a delay after construction starts.

Can approval expire before the builder starts?

Yes.

Construction approvals, valuations and mortgage insurance approvals can expire.

If the builder delays commencement, the lender may need updated:

• payslips
• bank statements
• credit checks
• loan statements
• valuation
• building contract
• insurance
• grant approval
• mortgage insurance approval

Approval is not open-ended.

Can the builder’s price expire before the build starts?

Yes.

Builder contracts, tenders and quotes may have price validity periods.

If the price expires before construction starts, the builder may increase the price.

This can affect:

• loan amount
• LVR
• valuation
• funds to complete
• borrower contribution
• mortgage insurance
• government guarantee eligibility

Ask how long the price is valid and what happens if finance or land settlement is delayed.

Can the lender require construction to start within a timeframe?

Yes.

Some lenders require construction to start within a particular period after approval, settlement or first drawdown.

The exact timeframe varies by lender and loan type.

If construction does not start in time, the lender may require updated documents or reapproval.

This is important if:

• land is unregistered
• council approval is delayed
• builder availability is uncertain
• you are waiting for grants
• you are still finalising selections

Can the lender require construction to finish within a timeframe?

Yes.

Construction loans usually have a maximum construction period.

Policy research includes examples of construction needing to be completed within 12 months, while some other policies allow longer drawdown windows depending on the lender.

The important point is that construction cannot remain open indefinitely.

If the builder has not started yet, confirm whether the proposed start and completion dates fit lender policy.

What if construction is delayed beyond the lender’s timeframe?

The lender may require:

• explanation for the delay
• updated builder timeline
• extension approval
• updated valuation
• updated insurance
• current financial documents
• evidence funds to complete remain available
• updated contract price
• confirmation no work has started or current stage evidence

A delay does not always cause decline, but it must be managed.

Can interest-only construction period start before building starts?

Possibly.

If the land loan has settled and the construction facility is approved, you may be paying interest before construction starts.

This can happen if:

• land settles first
• construction is delayed
• builder availability is delayed
• council approval is pending
• the first progress payment has not been drawn
• the loan is partly drawn for land only

During this period, you may also be paying rent.

Related research: Can You Get a Construction Loan with Only a 5% Deposit?

Do you pay interest before the builder starts?

If the land loan has settled, yes, you may be paying interest on the land loan or drawn balance.

If no loan funds have been drawn yet, then construction interest may not have started.

Once land settlement occurs, repayments usually start on the land debt.

This can create holding costs before construction begins.

Can delays before construction affect borrowing power?

Yes, if the lender needs to reassess.

Borrowing power may change if:

• interest rates rise
• your income changes
• you take on new debts
• living expenses increase
• bank statements worsen
• rent increases
• builder price increases
• valuation changes
• family circumstances change

A long delay before commencement can turn an approved loan into a reassessed loan.

Related research: Do Credit Card Limits Affect Your Home Loan Borrowing Power?

Can a job change before construction starts affect the loan?

Yes.

If your job changes before settlement or before construction drawdowns, the lender may need to reassess.

Approval can be affected by:

• probation
• casual employment
• reduced income
• change of industry
• loss of overtime
• parental leave
• self-employment
• fewer hours

Avoid major employment changes before the loan is fully set up unless you have checked the impact.

Can new debts before the builder starts affect approval?

Yes.

New debts can reduce borrowing power.

Avoid taking on:

• car loans
• personal loans
• new credit cards
• furniture finance
• buy now pay later debts
• overdrafts
• payday loans
• business debts

If the lender updates your file before settlement or drawdown, new debts may cause problems.

Can bank statement conduct before construction starts matter?

Yes.

Lenders may request updated bank statements if approval is delayed.

Poor conduct can affect approval, including:

• overdrawn accounts
• dishonours
• missed repayments
• payday loans
• excessive gambling
• unauthorised overdrafts
• late loan repayments
• unpaid bills

Keep accounts clean while waiting for the builder to start.

Related research: Can You Get a Home Loan with Overdrawn Bank Statements?

Can genuine savings expire or change?

The money itself does not “expire”, but the lender may need updated evidence.

If your required savings are spent before construction starts, the lender may ask how funds to complete are still available.

This can happen if you use savings for:

• furniture
• deposits
• upgrades
• cars
• holidays
• credit card repayments
• living costs
• early builder payments

Funds counted for approval should remain available unless the lender expects them to be used.

Can you pay the builder deposit before the loan is ready?

You can, but it can be risky.

If you pay the builder deposit before finance is fully approved, you may lose money if:

• loan is declined
• valuation is too low
• lender rejects the contract
• LMI is declined
• scheme approval fails
• council approval changes the project
• builder contract has no finance protection

Ask your solicitor whether the deposit is refundable and whether a finance clause applies.

Can the builder deposit be reimbursed by the lender?

Sometimes.

If the deposit is part of the approved construction contract and the loan structure allows it, the lender may recognise it as part of your borrower contribution or fund it through the drawdown process.

However, if the lender requires your contribution to be used first, the builder deposit may simply count as money you have already contributed.

Do not assume it will be reimbursed.

Does the borrower contribution need to be used before the builder starts?

Often, part of it does.

Some lenders require the borrower’s own contribution to be used before bank funds are advanced.

Before the builder starts, check:

• how much cash you must contribute
• whether land equity counts
• whether builder deposit counts
• when lender funds begin
• whether grants count
• whether progress payments are reimbursement-based

This is important for cash flow.

Can grants be used before the builder starts?

Possibly.

The First Home Owner Grant or other grants may be used in the funds-to-complete calculation if the lender accepts the timing and evidence.

The lender may ask:

• is the grant approved?
• when will it be paid?
• is it paid at land settlement, first drawdown or completion?
• does it count toward borrower contribution?
• does it satisfy scheme requirements?

Grant timing should be confirmed before relying on it.

Can the First Home Guarantee be used before construction starts?

Possibly, if the lender offers construction under the scheme and the project fits the rules.

The lender may need to confirm:

• eligible borrower
• eligible property
• price cap
• land and build contract structure
• minimum deposit
• genuine savings, where required
• owner-occupier purpose
• licensed builder
• construction timeframes

The guarantee may help with LMI, but it does not remove construction documentation requirements.

Can LMI be approved before the builder starts?

Yes, if the lender and mortgage insurer have enough information.

Mortgage insurance may require:

• borrower details
• loan amount
• LVR
• land and build details
• completed valuation
• building contract
• deposit evidence
• funds to complete
• property acceptability

If construction is delayed or the loan changes, LMI approval may need to be updated.

Can a valuation be done before the builder starts?

Yes.

Construction loans usually use an as-if-complete valuation before building begins.

The valuer may rely on:

• land details
• plans
• specifications
• building contract
• location
• comparable sales
• proposed dwelling
• market conditions

If the design, price or specifications change before the builder starts, the valuation may need to be updated.

What if the valuation expires before construction starts?

The lender may need a valuation update.

A valuation update can affect approval if:

• market values have changed
• build price has increased
• property design changed
• comparable sales changed
• land registration delayed
• the original valuation was close to LVR limits

Borrowers with low deposits are more exposed to valuation changes.

What if the valuation is lower than expected before building starts?

You may need to adjust the plan.

Options may include:

• increase deposit
• reduce build cost
• choose a different design
• negotiate land or build price
• use a guarantor, if suitable
• choose another lender
• wait and save more
• withdraw under finance clause, if available

It is much better to discover a valuation shortfall before building starts than halfway through construction.

Can site costs be confirmed before the builder starts?

Yes, and they should be.

Site costs may include:

• excavation
• piering
• slab upgrades
• drainage
• retaining walls
• sewerage
• septic
• stormwater
• driveway
• service connections
• bushfire requirements
• flood requirements

Confirming site costs before commencement reduces the risk of later cost increases.

What if site costs are not known before the builder starts?

The lender may be cautious.

Unknown site costs can create funds-to-complete risk.

The lender may ask:

• has a soil test been completed?
• is engineering finalised?
• are retaining walls required?
• are services included?
• are provisional sums realistic?
• does the borrower have contingency funds?

If costs are uncertain, the lender may require more evidence or a larger cash buffer.

Can the builder start before soil tests are done?

This is not ideal.

Soil tests help determine foundation and site preparation costs.

If soil classification is not known, the contract may include provisional sums that can change later.

From a finance perspective, this can weaken the application because the final cost may not be reliable.

Can builder insurance be arranged before commencement?

Yes, and it often must be.

Before construction starts, the lender may require evidence of:

• builder’s construction insurance
• public liability insurance
• domestic building insurance
• home warranty insurance
• contract works insurance
• other state-specific coverage

Missing insurance can delay commencement or drawdowns.

Can final home insurance wait until completion?

Usually, building insurance for the completed home is needed at or before final drawdown.

During construction, builder or contract works insurance may apply.

At completion, the lender may require:

• building insurance certificate
• correct property address
• adequate sum insured
• borrower named
• lender noted as interested party or mortgagee, where required

You should plan insurance before the builder starts and update it at completion.

What if the builder hasn’t started because permits are delayed?

This is common.

Permit delays can affect:

• construction start date
• builder price validity
• loan approval validity
• valuation validity
• grant timing
• land holding costs
• rent costs
• interest costs
• construction completion deadline

Keep your broker updated so lender timeframes can be managed.

What if the builder hasn’t started because the land is unregistered?

This can happen in new estates.

Land registration delays can affect:

• land settlement
• construction start
• builder price
• loan approval expiry
• valuation expiry
• government guarantee reservations
• grant timing
• interest rates
• borrowing power

If land is unregistered, confirm how long approval and pricing remain valid.

Related research: Can You Get a Construction Loan for Unregistered Land?

What if the builder hasn’t started because of weather?

Short weather delays are common.

If the delay is minor, the lender may not need anything.

If the delay becomes long, the lender may ask for:

• updated build timeline
• confirmation contract price remains valid
• updated insurance
• extension request
• evidence no financial position has changed

The lender cares most about long delays that affect approval, cost or completion.

What if the builder hasn’t started because the builder is busy?

Builder availability delays can still affect finance.

If the start date is pushed out, check:

• does approval expire?
• does valuation expire?
• does contract price expire?
• does the construction period still fit policy?
• will rent or holding costs increase?
• will your financial position change?

A delay before commencement should be managed before documents expire.

What if the builder hasn’t started because the builder is in financial trouble?

This is serious.

Before work begins, this may be the best time to reassess.

Warning signs may include:

• repeated delays
• requests for unusual upfront payments
• difficulty providing insurance
• difficulty providing licence details
• supplier issues
• contract changes
• poor communication

If you are concerned, speak with your solicitor and broker before allowing the build to start.

Can you change builders if the original builder has not started?

Yes.

Changing builders before construction starts is usually much easier than changing after work begins.

The lender will need updated:

• building contract
• progress payment schedule
• builder licence
• builder insurance
• plans and specifications, if changed
• valuation
• funds-to-complete calculation

Approval may need to be reassessed, but at least there is no partially completed construction to verify.

Can a builder delay cause the loan to be declined?

Possibly, if circumstances change.

The delay itself may not cause decline, but it can lead to issues if:

• approval expires
• valuation falls
• build price increases
• borrower income changes
• debts increase
• scheme eligibility changes
• mortgage insurance expires
• construction no longer fits policy timeframes

Keep the file current while waiting.

Can you start a knockdown rebuild if the builder hasn’t started yet?

Yes, but do not demolish too early.

For a knockdown rebuild, the sequence matters.

Ideally:

• finance is approved
• demolition funding is confirmed
• current lender consent is obtained
• building contract is accepted
• valuation supports the loan
• temporary accommodation is budgeted
• council approval is in place
• construction drawdowns are ready

Then demolition and construction can proceed.

Demolishing before finance is ready can create major problems.

Can you start major renovations before the lender approves the loan?

This is risky.

Major renovations can make the property partially complete or temporarily uninhabitable.

If works begin before approval, the lender may need to assess:

• current stage
• cost to complete
• property condition
• insurance
• approvals
• whether the same builder will continue
• whether progress payments can be verified

For structural renovations, approval should be in place first.

Can a modular home supplier start building offsite before finance is ready?

This can be risky.

Modular or offsite-built homes are more complex because part of the dwelling may be manufactured before it is fixed to the land.

The lender may not treat offsite modules as part of its security until they are installed and permanently attached.

Before the supplier starts, check:

• offsite progress payment rules
• deposit requirements
• insurance during manufacture and transport
• installation contract
• service connection costs
• lender policy for modular homes

Large offsite payments can create finance risk.

Can the lender pay for materials before the builder starts?

Usually, this is difficult.

Lenders generally prefer to fund completed work or approved deposits, not loose materials.

Materials purchased before installation may not form part of the lender’s security.

This can be an issue if the builder asks for large deposits for materials before work starts.

Can the builder order materials before finance approval?

They can, but you should be careful.

If the builder orders materials and you later cannot get finance, you may still owe money under the contract.

Before the builder orders materials, check:

• finance approval status
• cancellation rights
• deposit risk
• material payment terms
• whether lender will fund the stage
• whether contract price is fixed

Legal advice may be needed before committing.

Can you apply after paying for plans, permits and deposits?

Yes.

Many borrowers pay some pre-construction costs before applying.

These may include:

• architectural plans
• engineering
• soil tests
• council fees
• builder tender fees
• small deposit
• preliminary agreement

The lender may treat these as money already contributed, but it may not reimburse every cost.

Keep receipts and evidence.

Can pre-construction costs be included in the loan?

Sometimes.

Some lenders may include certain costs if they are part of the approved construction contract or funds-to-complete calculation.

Others may expect the borrower to fund pre-construction costs separately.

Examples include:

• design fees
• permits
• soil tests
• engineering
• demolition
• council fees
• preliminary builder fees

Ask before assuming the loan will cover them.

What if you have already paid the builder before loan approval?

The lender may ask for evidence.

You may need to provide:

• invoice
• receipt
• bank statement showing payment
• explanation of what was paid for
• whether work has started
• whether the amount forms part of the contract
• whether it counts as borrower contribution

If the payment was large or unusual, the lender may question it.

Can early payments count as borrower contribution?

Often, yes, if they are related to the approved project and properly documented.

For example, a builder deposit paid from savings may count toward your contribution.

However, if the funds were borrowed or the payment was outside the approved contract, the lender may treat it differently.

Keep clear evidence of all pre-start payments.

Can the lender reimburse early payments?

Sometimes, but not always.

The lender may not reimburse money spent before approval, especially if:

• the payment was not part of the approved contract
• work is not fixed to the site
• no invoice or receipt is available
• it was paid to a related party
• it was for optional items
• it was for plans or consultant fees outside policy

Do not spend money assuming the lender will reimburse it later.

What happens at the first progress payment?

The first progress payment depends on the contract.

It may be:

• builder deposit
• base stage
• slab stage
• site works stage
• preliminary stage

Before paying, the lender may need:

• invoice
• borrower authority
• inspection, if required
• evidence borrower contribution has been used
• proof approval conditions are met
• insurance
• permit or approval documents

If the builder has not started yet, the first drawdown is usually where lender process begins.

Can the lender refuse the first progress payment?

Yes.

The lender may refuse or delay the first progress payment if:

• loan has not settled
• mortgage documents are incomplete
• contract is not accepted
• insurance is missing
• permit is missing
• borrower contribution has not been used
• invoice does not match progress schedule
• builder details are incomplete
• valuation conditions are outstanding
• funds to complete are unclear

This is why the first draw should be planned before the builder starts.

What if the builder asks for payment before the first draw is ready?

You may need to delay payment or use your own funds.

Options include:

• ask builder to wait until finance is ready
• confirm lender drawdown timing
• pay from savings if acceptable
• renegotiate payment schedule
• speak with your solicitor about payment obligations
• confirm whether it counts as borrower contribution

Do not let the builder’s payment timeline outrun the lender’s approval process.

Can a lender require inspections before work starts?

Usually, the main valuation is completed before work starts.

Progress inspections happen after stages are claimed.

However, the lender may inspect or value the site before commencement to confirm:

• land value
• current property condition
• access
• site suitability
• whether demolition or works have already started
• whether the proposed build fits the valuation brief

This is especially important if the property has changed since application.

What if the valuer finds construction has already started?

The lender may reassess the application.

The file may need to be treated as partially complete construction.

The lender may ask for:

• current stage report
• paid invoices
• builder confirmation
• cost to complete
• updated valuation
• explanation
• confirmation same builder will finish

This can delay or affect approval.

Can the lender approve if work started after valuation but before settlement?

Possibly, but this can create problems.

If the valuation assumed construction had not started, but work begins before loan settlement, the lender may need an updated valuation or construction status check.

This can delay settlement or drawdowns.

Avoid changing the property condition between valuation and loan settlement without lender approval.

What should you do before the builder starts?

Before construction starts, confirm:

• loan approval is formal, not just conditional
• mortgage documents are complete
• land has settled, if applicable
• building contract is accepted
• progress schedule is accepted
• valuation is accepted
• builder documents are accepted
• insurance is in place
• permits are issued
• borrower contribution is ready
• drawdown process is understood
• broker has confirmed commencement readiness

This checklist helps prevent early-stage funding problems.

What should you ask your builder before they start?

Ask your builder:

• What date will work start?
• What is the first payment due?
• What must be paid before site start?
• Are permits issued?
• Is insurance in place?
• What documents will you provide to the lender?
• How much notice is given before each invoice?
• What are the progress stages?
• What happens if finance drawdown takes several business days?
• Are there any price expiry issues?
• What happens if start is delayed?

Clear answers help align builder timing with lender timing.

What should you ask your broker before the builder starts?

Ask your broker:

• Is the loan formally approved?
• Are all construction conditions satisfied?
• Has the lender accepted the building contract?
• Has the lender accepted the progress payment schedule?
• Is the valuation final?
• Is LMI or guarantee approval final?
• Can the first progress payment be made?
• Does my contribution need to be used first?
• What documents are needed for first drawdown?
• Has the lender issued commencement confirmation?

Your broker should confirm whether the lender is ready before works begin.

What should your solicitor check before the builder starts?

Ask your solicitor or conveyancer to check:

• building contract terms
• finance clause
• deposit risk
• start date obligations
• progress payment terms
• consequences of delayed payment
• builder default clauses
• permit requirements
• insurance requirements
• cancellation rights
• land settlement conditions

Legal contract obligations matter because the lender may not fund every invoice immediately.

10 common mistakes before the builder starts

1. Do not let the builder start before finance is ready.
2. Do not assume conditional approval is enough.
3. Do not start construction before land settlement.
4. Do not demolish before lender approval.
5. Do not pay large deposits without legal and finance advice.
6. Do not assume the lender will fund work already completed.
7. Do not rely on an expired valuation or builder price.
8. Do not ignore council approval or permit timing.
9. Do not take new debts while waiting for construction to start.
10. Do not assume refinancing after construction starts will be easy.

How to improve your chances of a smooth construction start

You can reduce risk by preparing early.

Helpful steps include:

• finalise the building contract
• use a licensed builder
• confirm fixed-price terms
• minimise provisional sums
• obtain soil tests and site cost confirmation
• organise council approval or building permit
• complete valuation early
• keep funds to complete available
• avoid new debts
• keep bank statements clean
• confirm insurance
• align builder start date with lender readiness
• understand the first drawdown process

The goal is to have finance, contracts, approvals and builder timing aligned before work begins.

Should you wait to start construction?

You should usually wait if:

• loan approval is only conditional
• land has not settled
• building permit is missing
• valuation is not final
• lender has not accepted the contract
• LMI or guarantee approval is pending
• funds to complete are not clear
• builder insurance is missing
• mortgage documents are not signed
• the first drawdown process is unclear

You may be ready to start if:

• formal approval is issued
• conditions are satisfied
• construction documents are accepted
• land settlement is complete
• permits are issued
• insurance is in place
• borrower contribution is ready
• lender has confirmed commencement or drawdown readiness

Example scenarios

Scenario 1: Builder has not started and loan is ready

A borrower has a signed fixed-price contract, council approval, valuation and formal approval.

The lender confirms construction can commence. The builder starts, and progress payments are released at agreed stages.

Scenario 2: Builder starts before finance is formal

A borrower lets the builder start after conditional approval.

The lender later requests more documents and delays the first drawdown. The borrower must pay early invoices from savings.

Scenario 3: Land has not settled

The builder wants to start before land settlement.

The lender refuses to fund construction because the borrower does not yet own the land and the mortgage is not in place.

Scenario 4: Construction starts before valuation

Site works begin before the valuation inspection.

The valuer notes the works have commenced, and the lender reassesses the loan as partially complete construction.

Scenario 5: Builder delayed by three months

The loan is approved, but the builder delays the start.

The borrower needs updated valuation and confirmation the builder price remains valid.

Scenario 6: Borrower changes builders before start

The original builder has not commenced work.

The borrower changes to a new builder. The lender reassesses the new contract, builder licence, insurance, price and valuation before approving.

So, can you get a construction loan if the builder hasn’t started yet?

Yes, and this is usually the ideal time to apply.

The strongest applications usually have:

• construction not yet commenced
• formal lender approval
• land settled or ready to settle
• licensed builder
• signed fixed-price contract
• accepted progress payment schedule
• approved plans and specifications
• council approval or building permit
• as-if-complete valuation
• insurance documents
• clear funds to complete
• borrower contribution ready
• lender confirmation before commencement

The weakest applications usually involve work started before approval, partially completed construction, missing permits, builder payment demands before drawdown, expired valuations, price increases or attempts to refinance after construction has commenced.

Construction finance is usually much easier before the builder starts than after work is underway.

Need help arranging finance before your builder starts?

A mortgage broker can help compare construction lenders before building begins.

We can review your land, building contract, builder, progress payment schedule, valuation, LVR, deposit, genuine savings, council approval, insurance, grants, funds to complete and construction start timing before you commit.

If your builder is ready to start, speak with a mortgage broker before works begin so the loan, drawdowns and construction documents are properly set up.