How Do Construction Loan Progress Payments Work?

How Construction Loan Progress Payments Work

Construction loan progress payments are staged payments released by the lender during the build, usually after the builder completes agreed stages of construction.

Instead of giving you the full construction loan upfront, the lender releases funds progressively as the property is built. This helps make sure the loan balance increases in line with the value of the security and that enough funds remain to complete the project.

Progress payments are one of the most important parts of a construction loan. They affect your cash flow, builder payments, timing, borrower contribution, inspection requirements, funds to complete and what happens if costs change during the build.

This guide explains how construction loan progress payments work in Australia, based on current policy research.

Progress payments are staged loan drawdowns paid during construction.

A construction lender usually releases funds when a construction stage is reached, rather than advancing the entire build amount upfront.

Typical progress payment stages may include:

• deposit
• slab or base
• frame
• lock-up
• fixing
• completion

The exact stages depend on the lender, builder contract, construction type and property.

Why do construction loans use progress payments?

Construction loans use progress payments because the finished property does not exist yet.

The lender wants to make sure:

• funds are used for construction
• the builder is paid for completed work
• the loan balance is supported by the increasing property value
• enough undrawn funds remain to complete the build
• the borrower’s contribution is used correctly
• the project does not run out of money before completion
• the lender’s security improves as construction progresses

This is why construction loans are more tightly controlled than standard home loans.

Who receives the progress payment?

Progress payments are usually paid directly to the builder, supplier or contractor.

Some lenders may release funds only after receiving:

• builder invoice
• borrower authority
• progress inspection
• valuation confirmation
• cost-to-complete assessment
• required insurance or approval documents

The lender may not simply transfer construction funds to the borrower’s everyday account.

Does the lender pay the builder directly?

Often, yes.

Many lenders control release of funds directly to the builder or supplier.

This helps ensure the money is used for the building work and not for unrelated expenses.

The borrower will usually authorise each payment, but the lender may still need to confirm the work stage before funds are released.

What are the standard construction stages?

Standard stages usually include:

• deposit
• slab or base
• frame
• lock-up
• fixing
• completion

Different states, contracts and lenders may use slightly different names.

Some lenders use stages such as base, frame, enclosed, fixing and practical completion.

Some policies use different stage percentages for standard construction, modular construction or renovation construction.

What is the deposit stage?

The deposit stage is usually the builder’s initial payment.

This may be payable when the building contract is signed or when construction is ready to begin.

The lender may limit how much can be paid at deposit stage.

A large builder deposit can cause issues if it does not match lender policy.

Before signing the building contract, check whether the builder’s deposit requirement is acceptable to the lender.

What is the slab or base stage?

The slab or base stage is usually reached when the footings, foundations or slab are completed.

For some builds, this may include:

• site preparation
• footings
• slab
• piers
• base works
• foundations

For homes without a slab, the equivalent foundation stage may apply.

The lender may require an invoice and, in some cases, an inspection before payment.

What is the frame stage?

The frame stage is generally when the structural frame is complete.

This may include:

• wall frames
• roof trusses
• structural framing
• external frame components
• internal frame components

The lender may need evidence that the frame has been completed before releasing the next progress payment.

What is lock-up stage?

Lock-up stage usually means the home can be secured.

This may include:

• external walls
• roof covering
• external windows
• external doors
• basic weatherproofing
• the ability to lock the property

Lock-up is a major milestone because the building is much closer to being enclosed and protected.

What is fixing stage?

Fixing stage usually means internal fit-out works are underway or substantially completed.

This may include:

• plasterboard
• internal linings
• doors
• architraves
• skirting
• cabinetry
• wet area works
• electrical and plumbing fit-off
• kitchen installation

Different lenders and builders may define fixing stage slightly differently.

What is completion stage?

Completion stage is the final stage of construction.

The lender may require:

• final builder invoice
• final inspection
• certificate of occupancy or equivalent
• updated building insurance
• confirmation works are complete
• evidence services are connected
• borrower authority
• practical completion documents

The final progress payment may not be released until the lender is satisfied the property is complete and habitable.

Are progress payment stages always the same?

No.

Progress payment stages can vary depending on:

• lender policy
• building contract
• state or territory
• builder type
• construction method
• fixed-price or cost-plus contract
• renovation versus new build
• modular or offsite construction
• owner-builder construction
• number of dwellings
• property type

This is why the lender reviews the building contract before approval.

How does the lender decide the payment amount?

The lender usually looks at the progress payment schedule in the building contract.

The schedule should show:

• each stage
• percentage payable
• dollar amount payable
• timing of payment
• work required before payment

The lender may check whether the stage percentages are reasonable and aligned with industry norms.

If the schedule is unusual, the lender may ask for changes or further review.

Can the builder set any progress payment schedule?

Not always.

The builder may propose a payment schedule, but the lender does not have to accept it.

A lender may reject or question a schedule if:

• too much is paid upfront
• early stages are overweighted
• payment is requested before work is completed
• stages do not match normal construction progress
• too little money remains for completion
• the schedule does not match valuation or inspection requirements
• the build type creates extra risk

The payment schedule should be reviewed before the contract is signed.

What if the builder wants a large upfront payment?

This can be a problem.

Lenders usually do not want to advance large amounts before value has been added to the property.

A large upfront payment may be difficult because:

• the lender’s security has not improved yet
• the work may not be complete
• the builder may fail before delivery
• the project may be underfunded later
• mortgage insurer policy may not allow it
• borrower contribution may need to cover it

If the builder needs a large upfront deposit, check with the lender before agreeing.

What is a progress draw?

A progress draw is another name for a progress payment.

It means drawing part of the approved construction loan to pay a construction stage.

For example, if your loan is approved for land and construction, the loan might be drawn gradually as each stage is completed.

You pay interest only on the amount actually drawn, not the full construction loan limit, unless your loan contract says otherwise.

Do you pay interest on the whole construction loan?

Usually, you pay interest only on the amount drawn.

For example, if your approved construction loan is $500,000 but only $150,000 has been drawn, interest is usually charged on the $150,000 drawn balance.

As more stages are paid, the drawn balance increases and repayments rise.

By completion, the full loan may be drawn and normal repayments begin.

Are construction loans interest-only during the build?

Often, yes.

Many construction loans are interest-only during the construction period.

This is because the loan balance increases progressively and the property is not yet complete.

After construction, the loan may convert to principal and interest, depending on the lender, loan type and borrower preference.

Some government guarantee or scheme loans may require principal and interest after construction.

Related research: Can You Get a Construction Loan to Build a House in Australia?

When do repayments start?

Repayments usually start after the first loan drawdown.

If the lender settles the land first, repayments may start on the land loan amount.

As construction payments are drawn, repayments increase.

This means borrowers may need to manage:

• rent while building
• construction loan interest
• existing mortgage repayments
• storage costs
• utility connection costs
• insurance
• everyday living expenses

Cash flow during construction needs to be planned carefully.

Do you pay rent and construction interest at the same time?

Often, yes.

If you cannot live in the property during construction, you may pay rent while also paying construction loan interest.

The lender may consider this when assessing affordability.

A borrower who can comfortably afford the completed loan may still feel cash-flow pressure during the build if rent, construction interest and living costs overlap.

What is borrower contribution?

Borrower contribution is the money you must contribute toward the land, build or project costs.

This may include:

• deposit
• savings
• equity
• sale proceeds
• First Home Owner Grant
• family gift
• cash contribution
• other verified funds

The lender calculates how much you must contribute before and during construction.

Does the borrower contribution need to be used first?

Often, yes.

Some lender policies require the borrower’s contribution toward construction costs to be used before the lender’s loan funds.

This means your savings or equity contribution may be paid into the project before the bank starts releasing construction funds.

This is important because it affects when you need cash available.

Why do lenders use the borrower contribution first?

Lenders use the borrower contribution first to reduce risk.

It helps ensure:

• the borrower has committed their own funds
• the loan does not exceed approved LVR
• the lender does not over-advance early
• enough loan funds remain available later
• the project remains funded through completion

At low deposit levels, this requirement can make cash-flow planning especially important.

What if you do not have enough cash for the first stage?

The loan may be delayed or fail.

If the lender requires you to use your contribution first, but you do not have enough cash to pay early invoices, you may need to:

• renegotiate the builder’s payment schedule
• delay construction
• use additional savings
• use a gift, if acceptable
• increase the loan, if serviceability and LVR allow
• reduce build costs
• choose another lender
• provide evidence of extra funds

Do not assume the lender will fund every early invoice.

What is funds to complete?

Funds to complete means all money needed to finish the construction project.

The lender wants to know that the project can be completed using:

• borrower contribution
• loan funds
• grants
• sale proceeds
• acceptable gifts
• verified cash

The funds-to-complete calculation includes more than the building contract.

It may include land settlement costs, stamp duty, legal fees, site works, council fees, variations, contingency and other project costs.

Why does funds to complete matter for progress payments?

Funds to complete matters because the lender must keep enough undrawn money available to finish the build.

If the lender releases too much too early, there may not be enough left for later stages.

This is why some lenders pay on a cost-to-complete basis.

They may check that the remaining loan funds plus borrower funds are enough to complete the remaining work.

What is cost-to-complete funding?

Cost-to-complete funding means the lender releases funds only if enough money remains to complete the build.

For example, if the builder asks for a progress payment, the lender may check:

• amount already paid
• current stage
• remaining contract amount
• undrawn loan funds
• borrower funds remaining
• variations
• contingency
• valuer or quantity surveyor comments

If there is a shortfall, the lender may not release the payment until the shortfall is covered.

What is progressive LVR?

Progressive LVR means the lender may check the loan-to-value ratio at different construction stages.

This can matter when the loan balance increases before the property is complete.

Some lenders may ensure the drawn loan amount is supported by the value of the land and completed works at each stage.

Other lenders may instead focus on holding enough funds to complete.

The exact method depends on lender policy.

Do lenders inspect every stage?

Not always.

Some lenders require inspections at every stage.

Some require inspections at selected stages, such as slab and completion.

Some require valuer progress reports before each drawdown.

Some rely on invoices and borrower authority for certain stages.

Some require quantity surveyor reports for large, complex or cost-plus builds.

Inspection requirements depend on lender, contract type and build risk.

What is a progress inspection?

A progress inspection is a check of the construction stage before the lender releases funds.

It may be completed by:

• valuer
• quantity surveyor
• lender-appointed inspector
• building consultant

The inspection may confirm that the claimed stage has been reached and whether remaining funds are sufficient to complete the works.

Who orders progress inspections?

Usually, the lender or broker follows the lender’s process to order the inspection.

In some cases, the lender orders the inspection directly.

The borrower may need to provide:

• builder invoice
• builder progress claim
• stage details
• contact details for site access
• borrower payment authority
• updated documents, if required

Inspection delays can delay builder payment.

Who pays for progress inspections?

The borrower often pays for progress inspection fees.

Fees may be charged:

• per inspection
• as part of valuation costs
• when each drawdown is requested
• upfront
• at settlement

You should budget for progress inspection fees as part of construction costs.

Can progress payment delays happen?

Yes.

Progress payments can be delayed if:

• invoice details are wrong
• borrower authority is missing
• inspection has not been completed
• work stage is incomplete
• insurance is missing
• council approval is missing
• valuation report is not updated
• cost-to-complete position is unclear
• variations have not been approved
• builder licence or warranty documents are missing
• lender processing times are longer than expected

Build timing should allow for lender processing.

How long do progress payments take?

Timing varies by lender.

A progress payment may take a few business days once all documents are received and accepted.

It can take longer if an inspection is needed or if documents are missing.

To avoid delays, ask the builder to provide invoices early and make sure borrower authority is signed quickly.

What documents are needed for a progress payment?

Documents may include:

• builder invoice
• progress claim
• borrower signed authority
• valuer progress inspection report
• quantity surveyor report, if required
• updated insurance
• evidence of completed stage
• variation documents
• council approval or permit evidence
• builder bank details
• statement of account
• occupancy certificate at completion
• final building insurance at completion

The exact requirements depend on the lender and stage.

What does the borrower need to sign?

The borrower usually signs an authority confirming they approve the progress payment.

This confirms the borrower is authorising the lender to release funds to the builder or supplier.

Do not sign a progress payment authority if you believe the stage has not been completed.

If there is a dispute with the builder, speak with your broker, lender and solicitor before authorising payment.

Can the lender pay if the borrower refuses to sign?

Usually, the lender will not release a normal progress payment without borrower authority.

If the borrower disputes the invoice, the lender may pause payment until the issue is resolved.

This can protect the borrower, but it can also create construction delays.

Document any dispute carefully.

Should you inspect the work before approving payment?

Yes.

Before authorising a progress payment, you should check whether the claimed stage appears complete.

You may also rely on:

• builder communication
• independent building inspector
• lender progress inspection
• site visit
• photographs
• contract stage definitions

Do not assume the lender’s inspection replaces your own due diligence.

Does the lender’s inspection check build quality?

Not in the same way as an independent building inspection.

A lender progress inspection is usually focused on whether the stage has been reached and whether the security supports the drawdown.

It may not identify every defect, workmanship issue or contract dispute.

If you want quality assurance, consider independent building inspections.

Can you use an independent building inspector?

Yes.

Many borrowers arrange independent inspections at key stages.

This may help identify defects before payments are released.

Common inspection points include:

• slab
• frame
• pre-plaster
• lock-up
• fixing
• practical completion

The lender may still require its own inspection, but your independent inspector protects your interests.

What if the builder claims a stage is complete but it is not?

Do not authorise payment until the issue is resolved.

You may need to:

• ask the builder for clarification
• review the contract stage definition
• arrange an independent inspection
• notify your broker
• notify the lender
• seek legal advice if the dispute is serious

If the lender pays before the stage is properly complete, it may be harder to resolve the issue later.

What if the lender’s inspector disagrees with the builder?

The lender may refuse or reduce the progress payment.

This can happen if the inspector says:

• the stage is incomplete
• work is not sufficiently advanced
• value added does not support the claim
• there are defects affecting completion
• insufficient funds remain to finish
• the claim does not match the contract

The builder may need to complete further work or provide revised documentation.

Can a progress payment be partially paid?

Sometimes.

If the lender or inspector believes only part of the claimed work is complete, the lender may approve a partial payment.

This depends on lender policy and builder contract.

Partial payments can cause tension with builders, so it is important that contract stages are clear from the start.

What happens if the builder’s invoice exceeds the approved stage amount?

The lender may not pay the excess unless it is approved.

If the invoice includes variations or extra costs, the lender may ask for:

• signed variation
• updated contract price
• updated funds-to-complete calculation
• borrower evidence of cash to cover the variation
• revised valuation, if needed
• credit approval for loan increase, if needed

Unapproved variations can delay payment.

What are variations?

Variations are changes to the original building contract.

They may include:

• upgraded finishes
• design changes
• additional rooms
• site cost changes
• material changes
• structural changes
• landscaping
• driveway changes
• council requirements

Variations can increase cost and affect funds to complete.

Can variations be funded by the construction loan?

Sometimes.

A lender may fund variations if:

• the variation is documented
• the borrower still has enough funds to complete
• LVR remains within policy
• serviceability still passes
• valuation supports the change
• credit approval is updated if needed

Elective upgrades may need to be paid by the borrower.

What if variations cause a shortfall?

You may need to contribute extra funds.

Options may include:

• use savings
• reduce other upgrades
• request a loan increase
• renegotiate with builder
• delay optional works
• use gift funds, if acceptable
• revise project scope

At high LVR, variation shortfalls can be difficult because there may be little equity buffer.

What if build costs increase during construction?

If build costs increase, the lender will not automatically increase the loan.

A loan increase may require:

• updated serviceability
• updated valuation
• updated LVR assessment
• updated contract
• signed variations
• credit approval
• mortgage insurer approval, if applicable
• evidence of funds to complete

If the loan increase is not approved, the borrower must cover the shortfall.

What happens if the builder goes over budget?

A fixed-price contract helps limit this risk, but cost increases can still occur through variations or exclusions.

If costs exceed budget, the lender may ask who is paying the difference.

The lender may not release further funds if the project is no longer fully funded.

This is why construction borrowers should keep a contingency buffer.

What is a contingency buffer?

A contingency buffer is extra money set aside for unexpected costs.

It may be used for:

• variations
• site issues
• council requirements
• delays
• temporary accommodation
• extra interest
• additional service connections
• minor shortfalls

A construction loan with no contingency is riskier, especially at high LVR.

Does the lender include contingency in the loan?

Sometimes.

Some lenders require a contingency for cost-plus contracts or large builds.

Other lenders may not formally include a contingency but still want evidence of surplus funds.

If the contingency is borrowed, LVR and serviceability must still work.

If the contingency is cash, the lender may want evidence that funds are available.

What happens if construction is delayed?

Delays can affect progress payments and repayments.

Possible causes include:

• weather
• material shortages
• labour shortages
• council delays
• builder issues
• variations
• site problems
• supply chain issues
• payment disputes

A lender may allow a construction period, but if the build runs too long, extension approval may be needed.

How long can construction take?

Lender policies vary.

Some lenders require construction to start within a set period after loan approval or land settlement and finish within a maximum construction period.

Some policy research shows examples such as first draw within 12 months and full draw within 24 months, while other lenders may restrict builds over 12 months or 300 working days.

The key point is that construction cannot remain open indefinitely.

What if construction takes longer than the lender allows?

The lender may require:

• extension request
• explanation for delay
• updated builder timeline
• updated valuation
• updated insurance
• updated serviceability, if circumstances changed
• revised progress payment schedule
• confirmation funds remain sufficient

Serious delays can affect approval and loan management.

What if the builder goes insolvent?

Builder insolvency is one of the biggest construction risks.

If the builder fails, you may need:

• insurance claim
• new builder
• updated contract
• cost-to-complete report
• new valuation
• lender approval
• extra funds
• legal advice
• revised timeframe

The lender will usually pause further progress payments until the situation is reviewed.

Can progress payments continue after changing builders?

Possibly, but the lender must approve the new structure.

The lender may ask for:

• termination documentation
• new builder contract
• new builder licence
• new insurance
• updated cost-to-complete estimate
• revised valuation
• updated progress payment schedule
• evidence of funds to complete

Changing builders can be complex and slow.

What if the borrower changes jobs during construction?

This can affect loan approval if the loan is not fully drawn or if a further credit approval is needed.

If your income changes during construction, tell your broker before requesting changes to the loan.

The lender may reassess serviceability if:

• loan increase is requested
• construction term is extended
• major variation occurs
• settlement conditions are not complete
• hardship occurs

Avoid changing jobs during construction if it could affect funding.

What if the borrower has a baby or goes on parental leave during construction?

This can affect affordability.

A lender may reassess if there is a material change to income or expenses.

Parental leave can affect:

• income
• childcare costs
• living expenses
• rent during construction
• ability to fund variations
• serviceability for loan increases

Plan life events around construction cash flow where possible.

Related research: Can You Get a Home Loan While on Maternity Leave or Parental Leave?

What if bank statements worsen during construction?

This can become an issue if the lender needs updated information.

Avoid:

• missed repayments
• payday loans
• overdrawn accounts
• excessive gambling
• new credit cards
• personal loans
• unpaid bills
• BNPL arrears

If the lender reassesses the loan, poor conduct can affect approval.

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

Can you refinance during construction?

Usually, this is difficult.

A new lender may not want to take over a partially completed build.

Problems include:

• uncertain work quality
• cost-to-complete uncertainty
• incomplete valuation
• builder disputes
• insurance issues
• partial security value
• unknown construction history

It is much easier to choose the right lender before construction starts.

Can you refinance after construction is complete?

Yes.

Once the property is complete, insured, approved and habitable, refinancing may be easier.

The new lender may assess:

• current valuation
• completed title and security
• loan balance
• repayment history
• serviceability
• credit conduct
• property type
• LVR

A completed home is usually easier to refinance than a partially built home.

Can you get cash out before construction is complete?

Usually, cash out during construction is difficult.

The lender’s priority is completing the build.

If you need more money during construction, the lender may require:

• variation evidence
• updated valuation
• loan increase approval
• funds-to-complete review
• mortgage insurer approval

Cash out for unrelated purposes is usually much harder before completion.

Can you use savings for upgrades after completion?

Yes, many borrowers use savings for items not included in the building contract.

These may include:

• landscaping
• fencing
• window coverings
• furniture
• appliances
• security screens
• air conditioning upgrades
• additional paving

If these items are not included in the build contract or valuation, the lender may not fund them through progress payments.

Are landscaping and fencing included in progress payments?

Only if they are included in the approved contract and valuation.

Some contracts exclude landscaping, fencing, driveways, retaining walls or window coverings.

If excluded, you may need separate funds.

This can matter because the final property may be technically complete but still require additional money to be liveable or council-compliant.

Can final payment be delayed because of missing items?

Yes.

Final payment may be delayed if required completion items are missing.

Examples include:

• occupancy certificate
• building insurance
• final inspection
• service connections
• approved plans
• builder invoice
• practical completion certificate
• unresolved defects
• required retaining walls
• council conditions

The lender needs final confirmation before releasing the last funds.

What is practical completion?

Practical completion is the stage where the building is complete enough for handover, subject to minor defects.

The builder may issue a notice of practical completion.

The lender may still require its own final inspection and insurance evidence before final payment.

Practical completion does not always mean every defect has been fixed.

What is a defects list?

A defects list is a list of items that need to be fixed before or after handover.

Examples include:

• paint defects
• damaged fixtures
• incomplete fittings
• door alignment
• minor cracking
• missing items
• poor finishes

The lender may not manage your defects list. You should review defects with your builder, inspector and contract adviser.

Can the lender hold back money for defects?

Sometimes.

If the final inspection shows incomplete work, the lender may delay payment or require the issue to be resolved.

However, lender holdbacks depend on policy and the nature of the issue.

Do not rely on the lender to manage building quality.

Does the final payment require building insurance?

Often, yes.

Some lenders require updated building insurance before final progress payment.

This may need to show:

• borrower name
• property address
• insured amount
• lender listed as interested party or mortgagee
• policy start date
• full building cover

Insurance should be arranged before final payment to avoid delays.

Does the final payment require certificate of occupancy?

Often, yes or equivalent final approval.

The lender may need evidence that the property is legally complete and habitable.

This may include:

• certificate of occupancy
• occupancy permit
• final inspection certificate
• building completion certificate
• practical completion certificate
• council final approval

Requirements vary by state and lender.

What happens after final progress payment?

After final payment, the construction loan usually converts to a standard home loan structure.

This may involve:

• full loan amount drawn
• repayments calculated on full balance
• interest-only construction period ending
• principal and interest repayments starting, if selected or required
• offset or redraw features becoming available, depending on product
• final loan term continuing
• normal loan management

Your repayments will usually be higher after completion because the full loan is drawn.

When does principal and interest start?

This depends on the loan contract.

Some loans switch to principal and interest after construction completion.

Others may continue interest-only if approved.

For low-deposit or government guarantee loans, principal and interest may be required after completion.

Check this before approval so you understand the repayment increase after the build.

Can progress payments be made for renovations?

Yes, if the renovation is treated as construction.

A lender may use progress payments where renovations:

• are structural
• rely on on-completion value
• involve external walls
• involve major extensions
• require staged builder payments
• require council approval
• materially change the property

Minor renovations may sometimes be funded differently, especially if LVR is low and the lender is not relying on on-completion value.

When are progress payments not required for renovations?

Progress payments may not be required where:

• LVR is low
• the loan does not exceed as-is property value
• funds are released as cash out
• renovations are cosmetic
• lender is not relying on on-completion valuation
• borrower controls the funds

Some lender policies allow standard loans for renovations if the LVR is acceptable against the current as-is value.

Can renovation funds be paid directly to the borrower?

Sometimes.

If the loan is not assessed as a construction loan and funds are released as cash out, the borrower may receive funds directly.

However, if the lender relies on the on-completion value, it may require construction-style progress payments and control release of funds.

The distinction matters.

Can progress payments be used for structural renovations?

Yes, often.

Structural renovations may include:

• extensions
• major internal changes
• load-bearing wall changes
• external wall changes
• adding rooms
• second-storey additions
• major rebuilds
• substantial repairs

These are more likely to be treated as construction loans with progress payments.

Can progress payments be used for knockdown rebuilds?

Yes.

A knockdown rebuild usually requires construction funding.

The lender may fund:

• existing land or mortgage refinance
• demolition, depending on structure
• new build progress payments
• completion funding

The lender will require a valuation based on the completed new dwelling and must be comfortable with the demolition and construction plan.

Can demolition be included in progress payments?

Possibly.

Demolition costs may be included if they are part of the approved project cost.

The lender may ask for:

• demolition quote
• council approval
• builder contract
• funds-to-complete calculation
• insurance
• evidence demolition has occurred

Some lenders may require demolition to be funded by the borrower before construction drawdowns begin.

Can progress payments be used for modular homes?

Yes, some lenders allow progress payments for offsite-built or modular homes, but rules can be different.

The lender may restrict payments before the home is fixed to the site.

For modular homes, the lender may require evidence that:

• modules are completed to a defined stage
• the home is transported and installed
• the dwelling is permanently affixed
• plumbing and electrical are connected
• services are available
• final inspection confirms completion

Offsite construction does not always fit standard slab, frame and lock-up stages.

Why are modular progress payments different?

Modular homes are partly built away from the land.

The lender’s mortgage usually secures the land and improvements attached to it.

Before installation, the modules may not be part of the lender’s security.

This is why some lenders limit early payments and require inspection once the home is fixed and secured on site.

Can progress payments be used for off-the-plan apartments?

Usually, no.

Off-the-plan apartment purchases are usually funded at completion, not by progress payments during construction.

The developer builds the apartment, and the buyer settles when it is complete.

Some policies specifically state that progress payments will not be made during construction for off-the-plan unit purchases.

This is different from building a detached house under a construction loan.

Can progress payments be used for turnkey house and land packages?

Not always.

Some turnkey packages settle only when the property is complete.

In that case, the loan may be treated more like an off-the-plan or completed purchase.

Other house and land packages involve land settlement first and construction progress payments.

The contract structure determines the loan structure.

Can progress payments be used for owner-builder loans?

Sometimes, but owner-builder progress payments are more restrictive.

Some lenders require owner-builder progress payments to be reimbursement-based.

This means the owner-builder may need to pay for completed works first, then seek reimbursement after inspection.

Owner-builder loans may also have lower LVR caps and no LMI availability.

Why are owner-builder progress payments harder?

Owner-builder loans are harder because:

• there is no independent licensed builder managing the whole build
• cost control can be weaker
• progress verification is harder
• warranty insurance may be limited
• completion risk is higher
• the borrower’s time and income may be affected
• funds-to-complete risk is greater

Progress payments are often more tightly controlled.

Can progress payments be used for cost-plus contracts?

Sometimes, but cost-plus contracts are more complex.

A cost-plus contract means the final cost depends on actual labour, materials and builder margin.

The lender may require:

• quantity surveyor report
• initial costing report
• contingency allowance
• more detailed progress inspections
• credit approval
• lower LVR
• evidence of funds to complete

Some lenders do not accept cost-plus contracts for standard residential construction.

Can progress payments be used for fixed-price contracts?

Yes, this is the most common and usually preferred structure.

A fixed-price contract gives the lender a clearer total cost.

The lender can match progress payments against the agreed stage schedule.

A fixed-price contract is usually stronger because:

• total build cost is known
• progress stages are defined
• funds to complete can be calculated
• valuation can rely on the contract
• LMI may be available

Fixed price does not remove all risk, but it helps.

What is a quantity surveyor report?

A quantity surveyor report is a cost report prepared by a professional quantity surveyor.

It may be required for:

• high-value construction
• cost-plus contracts
• complex builds
• unusual projects
• owner-builder scenarios
• major renovations

The report may assess whether costs are reasonable and whether enough funds remain to complete the build.

What is an initial costing report?

An initial costing report reviews the proposed construction cost before the build progresses.

It may compare the contract, plans and specifications against expected construction costs.

Some lenders require initial costing reports for certain contract types or values.

This helps the lender understand whether the project is properly costed.

Can progress payments be made without inspections?

Sometimes, depending on lender and stage.

Some lenders may release certain payments based on invoices and borrower authority only.

Others require inspections for every stage.

Some require inspection only for key stages such as slab and completion.

For higher-risk construction, inspections are more likely.

Can a lender rely only on the builder invoice?

Sometimes, but not always.

An invoice is important, but it may not prove the stage is complete.

The lender may still require:

• progress inspection
• valuation update
• cost-to-complete confirmation
• borrower authority
• insurance
• council approval
• quantity surveyor report

The lender decides what evidence is needed.

Can progress payments be made before work is complete?

Usually, no.

Lenders generally release funds for completed stages, not future work.

Exceptions may exist for approved deposits or specific offsite-built home stages, but they are controlled.

If the builder wants funds before work is complete, this should be checked before contract.

Can the lender pay for materials stored offsite?

Usually, this is difficult.

Lenders prefer to fund work that is fixed to the property.

Materials stored offsite may not be part of the lender’s security.

Some modular or offsite-built policies may allow limited payments subject to controls, but standard construction loans usually focus on completed onsite stages.

What if materials are delivered to site but not installed?

The lender may not treat them as completed work.

Materials sitting onsite can be stolen, damaged or unused.

The lender may require installation or fixation before releasing payment.

This is especially relevant for expensive items such as windows, cabinetry, appliances or modular components.

Can appliances be included in progress payments?

Only if they are part of the building contract and valuation.

Loose appliances or furniture may not be funded.

Built-in appliances may be included if they are part of the fixed contract and installed at the relevant stage.

The lender focuses on improvements that form part of the real property security.

Can landscaping be included in progress payments?

Yes, if included in the approved contract and valuation.

However, landscaping is often excluded or partly excluded from builder contracts.

If landscaping is needed for council compliance, drainage or occupancy, it should be included in the funds-to-complete calculation.

If landscaping is optional, the borrower may need to fund it separately.

Can driveways be included?

Yes, if included in the contract or approved costs.

A missing driveway may delay final completion if it is required for access or council approval.

If the driveway is excluded from the contract, the lender may still need evidence that you have funds to complete it.

Can retaining walls be included?

Yes, and they can be important.

Some policy research notes that where retaining walls are required, their cost may need to be included in the building cost and completed before final payment.

Retaining walls can be expensive, especially on sloping blocks.

If they are excluded from the contract, funds-to-complete risk increases.

Can fencing be included?

Yes, if included in the contract.

If fencing is required by council, estate covenants or safety rules, it may need to be part of the approved project cost.

If fencing is optional, it may be funded separately from the construction loan.

What happens if the borrower spends the contingency?

The lender may ask whether enough funds remain to finish.

If contingency money is used early, later stages may be underfunded.

Keep records of how contingency funds are used.

If the lender believes the project is short, it may pause progress payments until the borrower contributes more cash.

Can you request a loan increase during construction?

Yes, but approval is not guaranteed.

The lender may reassess:

• income
• debts
• credit conduct
• LVR
• valuation
• construction cost
• variations
• mortgage insurance
• funds to complete
• loan purpose

A loan increase can be difficult if property value has not increased enough to support the higher loan.

Can interest be capitalised during construction?

Sometimes, but not always.

Capitalising interest means adding interest to the loan balance instead of paying it monthly.

Many standard construction loans require interest payments during construction.

If interest capitalisation is allowed, it affects LVR, loan balance and approval.

Most borrowers should budget to pay interest during construction.

What if construction interest costs more than expected?

If rates rise or construction takes longer, interest costs can exceed your budget.

You may need to cover the extra cost from savings.

This is why a buffer is important.

The lender may not increase the loan simply because interest during construction was higher than expected.

What if the loan is fully drawn before completion?

This is a serious problem.

If all loan funds are used before the build is complete, the borrower must find extra money to finish the project.

The lender may not release further funds unless a loan increase is approved.

This is why lenders try to ensure enough funds remain at each stage.

Can a builder ask for payment if the lender refuses?

Yes, the builder may still demand payment under the building contract.

If the lender refuses because a stage is incomplete or funds are short, the borrower may be caught between the lender and builder.

This is why the contract and lender progress payment process should align before construction starts.

What if the builder charges late payment fees?

Some building contracts may allow interest or fees if progress payments are late.

Lender processing delays can create stress if the builder’s payment deadlines are short.

Ask the builder how long payment is allowed after invoice and check whether lender processing can meet that timeframe.

Can progress payments affect builder relationship?

Yes.

Builders want prompt payment.

Lenders want controlled release of funds.

Borrowers sit between both.

Good communication helps:

• tell the builder the lender’s process early
• provide invoices quickly
• sign authorities promptly
• book inspections early
• keep copies of documents
• avoid unapproved variations
• explain lender processing times

This can reduce disputes.

How can you avoid progress payment delays?

Helpful steps include:

• give the builder the lender’s progress payment process
• confirm stage percentages before contract
• keep borrower contribution available
• provide invoices quickly
• sign drawdown authorities promptly
• order inspections early
• keep insurance current
• document variations
• maintain a contingency buffer
• avoid changing contract terms without lender approval
• communicate with broker and lender

Preparation prevents most delays.

What documents should be ready before the first progress payment?

Before the first construction draw, the lender may require:

• executed building contract
• plans and specifications
• builder licence
• builder insurance
• home warranty insurance
• council approval or building permit
• valuation
• borrower contribution evidence
• land settlement completed
• mortgage documents signed
• progress payment schedule
• construction loan approval conditions satisfied

If any of these are missing, the first draw may be delayed.

What documents should be ready before final payment?

Before final payment, the lender may require:

• final invoice
• final progress inspection
• certificate of occupancy or equivalent
• practical completion notice
• updated building insurance
• confirmation services are connected
• evidence required retaining walls or access works are complete
• borrower authority
• final valuation or valuer sign-off
• statement of account

Final payment often needs more documents than earlier stages.

Should you keep a construction file?

Yes.

Keep copies of:

• building contract
• variations
• invoices
• payment receipts
• progress claims
• inspection reports
• insurance certificates
• council approvals
• occupancy certificate
• builder correspondence
• photos
• lender drawdown confirmations

This helps if there is a dispute, delay or refinance later.

What should you check before signing the building contract?

Before signing, check:

• payment stages
• stage percentages
• deposit amount
• fixed-price terms
• provisional sums
• site costs
• exclusions
• variation rules
• payment deadlines
• insurance requirements
• completion timeframe
• whether the schedule fits lender policy

The wrong payment schedule can create finance problems later.

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

What should you ask your builder?

Ask your builder:

• What are the progress payment stages?
• What percentage is due at each stage?
• Is the contract fixed price?
• Are site costs fixed?
• What is excluded?
• How quickly must invoices be paid?
• Are variations paid immediately or at stage claim?
• What happens if the lender needs an inspection?
• What documents will the builder provide?
• Is warranty insurance included?

The builder’s answers should be checked against lender policy.

What should you ask your broker?

Ask your broker:

• Does the lender accept this progress payment schedule?
• Does my contribution need to be used first?
• Which stages require inspections?
• How long do drawdowns usually take?
• What happens if a variation occurs?
• Does the lender pay the builder directly?
• Are modular or renovation stages treated differently?
• What documents are needed for each draw?
• Is there enough funds to complete?
• What happens if the build runs over time?

Your broker should review the construction process before loan documents are signed.

What should you ask your solicitor?

Ask your solicitor or construction contract adviser:

• Are the progress payment stages fair?
• Are payment deadlines realistic?
• Are deposit requirements lawful and reasonable?
• Are variations controlled?
• What happens if the builder is late?
• What happens if payment is delayed?
• What dispute rights do you have?
• What happens if the builder becomes insolvent?
• Are insurance requirements met?

Legal review matters because lender approval does not protect you from a poor building contract.

11 common mistakes with construction progress payments

1. Do not assume the lender pays the full build cost upfront.
2. Do not sign a contract with large early payments without checking lender policy.
3. Do not forget borrower contribution may need to be used first.
4. Do not approve progress payments before work is complete.
5. Do not ignore variations.
6. Do not assume the lender’s inspection checks workmanship.
7. Do not spend your contingency too early.
8. Do not forget rent and construction interest during the build.
9. Do not start construction before finance is fully set up.
10. Do not assume off-the-plan purchases use progress payments.
11. Do not assume modular homes follow standard stages.

How to make progress payments run smoothly

You can reduce delays by preparing early.

Helpful steps include:

• use a licensed builder
• obtain a fixed-price contract
• ensure payment stages are standard
• keep your borrower contribution available
• provide builder invoices quickly
• sign payment authorities promptly
• book inspections early
• keep insurance current
• keep a contingency buffer
• document all variations
• avoid changing builder or contract without lender approval
• stay in contact with your broker during the build

The smoother the paperwork, the smoother the payment process.

Example scenarios

Scenario 1: Standard fixed-price build

A borrower signs a fixed-price building contract with standard stages.

The lender approves land and construction, releases funds at each stage after invoices and required inspections, and converts the loan after completion.

Scenario 2: Builder asks for too much upfront

A builder asks for a large early payment before enough work is complete.

The lender refuses to release the funds. The borrower must renegotiate the payment schedule or contribute more cash.

Scenario 3: Variation increases the cost

The borrower upgrades the kitchen and adds extra site works.

The lender asks for signed variation documents and updated funds-to-complete evidence before approving further drawdowns.

Scenario 4: Modular home drawdown

A modular home is manufactured offsite.

The lender restricts early payments and requires evidence the home is permanently affixed to the site before later progress payments.

Scenario 5: Final payment delayed

The builder issues the final invoice, but the occupancy certificate and updated building insurance are missing.

The lender delays final payment until the required documents are provided.

Scenario 6: Borrower disputes the stage

The builder claims fixing stage, but the borrower believes work is incomplete.

The borrower does not sign the payment authority until an inspection and builder discussion confirm what has actually been completed.

So, how do construction loan progress payments work?

Construction loan progress payments work by releasing funds in stages as construction progresses.

The lender usually checks:

• builder invoice
• borrower authority
• construction stage reached
• valuation or inspection requirements
• remaining funds to complete
• insurance and approval documents
• variations
• loan conditions

The goal is to ensure the builder is paid for completed work, the borrower does not run out of funds, and the lender’s security remains protected.

Progress payments are normal, but they need planning. The building contract, lender policy and borrower cash flow must all work together.

Need help understanding construction loan progress payments?

A mortgage broker can help compare lenders for construction loans, progress payment structures, fixed-price builds, renovations, knockdown rebuilds, modular homes, owner-builder scenarios and house and land packages.

We can review your building contract, progress payment schedule, borrower contribution, valuation, funds to complete, deposit, grants, LVR and lender options before you start.

If you are planning to build, speak with a mortgage broker who understands construction lending and progress draw policy before you sign the building contract.