Common Mistakes with Construction Loan Fees

Construction loan fees add several thousand dollars to your building budget, and many Doncaster clients don't account for them until the first progress payment is due.

If you're planning to build in one of Doncaster's established pockets or on a subdivision block near the Eastern Freeway corridor, the loan structure works differently to a standard home loan. You'll pay fees at multiple stages rather than once at settlement, and some of those fees recur each time your builder requests funds. Understanding what you'll pay and when helps you budget accurately from the start.

What Construction Loan Fees Actually Cover

Construction loan fees cover the lender's administration, valuation, and inspection costs across the building period. Most lenders charge an upfront application or establishment fee, a progress inspection fee for each drawdown, and sometimes a separate valuation fee before the first payment is released. The progress inspection fee typically ranges from $250 to $400 per visit, and you'll usually have five to seven drawdowns depending on your building contract stages.

Consider a buyer building a custom home in Doncaster East with a fixed price building contract. Their lender charges a $600 establishment fee, a $350 progress inspection fee per stage, and a $300 valuation fee. With six progress payments scheduled, the inspection fees alone total $2,100. Add the establishment and valuation costs, and the total fee burden sits at $3,000 before a single brick is laid. Those amounts don't include council approval costs or the builder's own progress payment administration, which are separate.

Progressive Drawing Fees and How They Multiply

Progressive drawing fees apply each time your builder requests a payment, and they're charged regardless of how much is drawn down at that stage. A lender might charge $350 to inspect and approve a slab pour drawdown of $80,000, then another $350 for a frame stage drawdown of $60,000. The fee stays the same whether the drawdown is $20,000 or $100,000.

This structure catches people out when their builder follows a six-stage progress payment schedule instead of a five-stage one. An extra inspection means an extra fee. In our experience, clients building with project home builders in Doncaster often face more frequent drawdown requests than those using custom builders, simply because the contracts are structured differently. That difference can add $700 to $1,000 in additional fees across the build.

Interest Charges During Construction

You only pay interest on the amount drawn down, not the full loan amount, but that interest accrues from the day each payment is released. If your first drawdown is $100,000 and your second is $80,000 three months later, you'll pay interest on $100,000 for three months, then on $180,000 from that point forward. Most lenders offer interest-only repayment options during construction, which means you're not reducing the principal but you're still making monthly payments that increase with each drawdown.

Clients sometimes assume they won't pay anything until the build is complete. That assumption creates cash flow problems midway through construction when monthly interest payments have climbed to several hundred dollars and there are still three or four drawdowns remaining. Setting aside a buffer for these rolling interest costs prevents that squeeze.

The Cost Plus Contract Fee Trap

If you're building under a cost plus contract rather than a fixed price building contract, some lenders treat the loan as higher risk and charge additional fees or a higher construction loan interest rate. A cost plus contract doesn't lock in the final build price, which means the lender can't guarantee the total loan amount will cover completion. They might require more frequent valuations or inspections, and each of those adds to your fee total.

We regularly see this with clients building architecturally designed homes in Doncaster's leafier streets, where the build budget is harder to predict upfront. The flexibility of a cost plus contract appeals to buyers who want control over finishes and materials, but the loan fees and interest rate margin can be noticeably higher than a fixed price equivalent. If your lender charges an extra 0.20% on the rate and adds two additional progress inspections, that's $700 in extra fees plus higher interest costs across the construction period.

Upfront Costs Before the First Drawdown

Before your builder can request the first payment, you'll usually need to cover the land purchase settlement, council approval fees, and sometimes a separate valuation arranged by your lender. If you're buying a land and construction package in one of the newer Doncaster subdivisions, the land component settles first and you'll start paying interest on that portion immediately, even if construction doesn't commence for several weeks.

The timing gap between land settlement and the first construction drawdown creates a period where you're paying interest on the land loan without any offset from rental income or construction progress. That period might be four to eight weeks depending on when your registered builder is ready to start and when council plans are finalised. Budgeting for that gap means setting aside enough to cover interest, ongoing living costs, and any deposit top-up required before the build can start.

What Gets Missed in the Initial Budget

Most clients budget for the build contract price, the land cost, and stamp duty, but they underestimate how much the ancillary fees add up. Building loan fees, progress inspection costs, valuation fees, and council charges can easily reach $5,000 to $7,000 combined. If your lender also requires a quantity surveyor report for a cost plus contract or owner builder finance arrangement, that's another $800 to $1,200.

These costs sit outside the loan amount in most cases, which means they need to come from your savings or offset account. Running short on cash halfway through construction limits your ability to cover variations or unexpected expenses, and it puts pressure on your timeline if you need to delay a progress payment while you free up funds. Mapping out every fee before you sign the building contract gives you a realistic picture of what you'll need beyond the deposit.

Building a new home in Doncaster gives you the chance to design something that fits your block and your lifestyle, but the fee structure on construction loans requires careful planning from the outset. If you're weighing up a land and build loan or trying to work out how much you'll need in accessible savings, call one of our team or book an appointment at a time that works for you. We'll walk through your builder's progress payment schedule, show you what each stage will cost in fees and interest, and make sure your budget accounts for every drawdown before construction begins.

Frequently Asked Questions