Construction Option Loans

Frequently asked questions

• What is the construction option?
  The construction option, also known as a building loan, is a lending option that releases funds to pay a Licensed Builder (or fund your client’s Owner-Builder project) throughout each stage of your client’s build or renovation process.
• Is there a construction option fee?
  There are no progress draw fees or additional bank fees with our construction option. As for non-bank fees, your client may need to budget for the following, based on the complexity of their build:

  • A quantity surveyor report, if the valuer determines they need one.

  For full details, check out our construction option guide.
• When can construction start?
  We’ll let your client and their builder know by issuing a ’Builders Pack’, containing the info and documents needed during the building phase of their new home or reno. 
• How do ‘progress payments’ work?
  They let your client use their construction option to pay for specific stages of their build or reno, at various steps of completion. We only charge interest on the amount your client has drawn down, rather than the total construction option amount they’re approved for, which helps keep the cost of their construction option down. 

  There are various ways progress payments can be requested, all advised within the ‘Builders Pack’.  

  The final Progress Payment is subject to a satisfactory final inspection from our valuer, confirming the construction’s been completed as per the original plans and specs. You’ll also need a new building insurance policy and a full valuation to be done, along with the following relevant documents: 

  • NSW: Updated Surveyor Report or Certificate of Currency  
  • ACT, VIC, NT: Certificate of Occupancy and Completion 
  • QLD: Completion and Occupancy 
  • SA, WA, TAS: No additional documents 
• What are the stages of construction?
  The building process is split into standard construction stages, here’s an example of a 5-stage schedule: 

  1. Foundations/Slab – laying the foundation, levelling the ground, plumbing and waterproofing the foundation. 
  2. Frame – building the frame, partial brickwork, the roofing, trusses and windows. 
  3. Lockup – external walls, lockable windows and doors. 
  4. Fitout – gutters, plumbing, electricity, plasterboards and the partial installation of cupboards. 
  5. Practical completion/final stage – finishing touches, final plumbing, electricity, overall cleaning and final payments for equipment and builders. 
• What documents are needed?
  At application: 

  • Council approved plans and specifications (or, if not yet approved, a copy of those plans which have been, or are to be submitted to Council for approval). 
  • Signed & dated building contract, including the building stages and schedule of payments 
  • Variations/quotes, if applicable. 
  • Quantity Surveyor Report if requested by the valuer. 

   

  Before settlement (drawdown): 

  • Council approved plans and building specifications (if not already provided). 
  • Builders Risk Insurance and a copy of the builder’s ‘Public Liability Insurance’.  

  Both can obtained from your client's builder. 
• Could my client use a home loan top up instead of the construction option?
  If your client has equity in their property, they may be able to use it to increase their home loan, without using their to-be-constructed property as security. They might also be able to top up using equity they have in other investment properties or their block of land.

  One potential downside is they’ll have to fully draw their home loan from the start. Unlike the construction option, which only charges interest on what they’ve drawn down, a top up will mean they’ll start paying interest on the whole loan at the outset.

  If your client has a 100% offset account, they could move any not-yet-spent construction money over to offset this, but some extra costs might apply.
• What’s the difference between 'fixed price' and 'cost plus'?
  Fixed price contracts are designed to cap the budget on a construction (which are good for tight budgets).

  Cost plus contracts involve trust between your client and their builder. They’ll generally agree on an hourly rate for tradies and their builders, and an extra percentage cost to order and schedule materials (also known as a builder’s margin). On one hand, they’ll have more control over expenditure decisions. On the other, as they near their budget, their builder can have less responsibility should costs overrun.
• What’s the difference between ‘structural’ and ‘non-structural’?
  A non-structural renovation is a cosmetic upgrade, like laying floorboards or repainting the exterior or inside. Generally, the spend shouldn’t be any more than 10% of the home’s value. 

  A structural renovation’s a substantial change to the home, like moving walls, adding another level or adding an extension. Building codes differ between states and territories, there’s no real spending limit.
• Are there acceptable building types?
  Yes. The construction option is available for construction or renos/home improvements using licensed builders (either fixed price or cost plus contracts), or by owner-builders. Includes kit homes, multiple dwellings, transportable homes and house/land packages. 
• Can you give me an example scenario?
  A few years back, home buyers Susan and Mike bought a run-down yet perfectly liveable house on a block of land in the metro suburbs. Renting at the time, they planned on knocking down and rebuilding when they were ready to start a family. Well, that time had come. While checking out display homes and chatting to builders and architects, they realised they needed to talk money with lenders first.  

  Westpac offered a good interest rate with plenty of freedom, like flexible Progress Payments and Interest Only repayments during construction. They confirmed quotes, signed up their builder to manage the project, and with their $250,000 finance sorted, focused on the fun stuff: colour scheme, furniture and the nursery. 
• Do you have any construction tips?
  No matter how much planning you do, unexpected costs and delays are sometimes inevitable. So it helps for your clients to know regulations, the process and any tips before they start – check out the Australian Government’s yourhome site.
• Can my client borrow to buy land?
  For a house and land package, the first drawdown would be for the land and subsequent progress draws would cover each stage of building your client’s home. 

  If your client is just buying land with no building contract, they can apply for a regular Westpac home loan without the construction option. 

  If they are looking to switch their existing land loan from another lender to Westpac, check out our Rates and Offer page for our current Refinance Cashback offers.  
• How do I apply for the construction option?
  Check out our Contruction Loan flyer which outlines the process for brokers and their clients.
• How long does my client have to finish the Build?
  The build must be complete 24 months from the date of the loan offer.
• When are all contributions required?
  Your client’s full contribution is required at settlement.
• Can my client include additional work outside of their Builder’s Fixed price contract?
  Yes, they can include additional work in the loan application. I.e. Air Conditioning, Carpets, Landscaping. 

  Quotes of the additional work will need to be supplied at time of application so they can be included in the valuation of the proposed property.
• Can the First Home Owners Grant (FHOG) be used towards the Build?
  Yes. If your client qualifies for the FHOG they may utilise it as part of their contribution and the build of their home.
• Can my client request payments to the Builder over the phone?
  Yes. If your client has signed a Verbal Payment Authority form, they can call our Progress Draw Payments team on 1300 367 483 and request payments as per the Builder’s schedule. 
• Can my client borrow money to build a home if they are an Owner Builder?
  Yes, Owner Builders are able to borrow money to build a home. An Independent Adviser’s Inspection Report or Quantity Surveyor report is required for this type of build at each progress payment request.
• What is the cash out limit?
  We are increasing cash out for non-structural renovations from $100k to $250k for non LMI loans (approved).