Construction drawdowns: how progress payments work

What is a construction drawdown?

A drawdown is a payment released from your construction finance. Instead of one lump sum, the money is paid in stages that match the progress of the build. Each payment goes directly to your builder, not to you.

This protects you and the financier. Money is only paid for work that has been done, and each stage can be checked before the next payment is released.

What do you need before the build starts?

Construction finance starts with a clear picture of what's being built and what it will cost.

• A building contract. Our construction finance is for fixed-price building contracts with your builder. The contract sets out the price, the stages of the build and the payment for each stage.
• Plans and specifications. These show what the finished home will look like and what's included.
• Approvals. Building approvals and permits need to be in place under your state or territory's rules.

Your broker will confirm the documents you need for your application.

How does the valuation work for a build?

Before the financier approves construction finance, a valuer reviews the land, the building contract and the plans. The valuer estimates what the property is likely to be worth once it's complete.

That valuation helps decide how much can be financed. If the total cost of the land and build is more than the amount financed, the difference comes from your own contribution. Your broker will explain how and when your contribution is used during the build.

How are progress payments made to your builder?

Building contracts usually set out a series of stages. The names and number of stages vary between contracts and states, but a typical build looks like this:

1. Deposit, paid when the contract is signed.
2. Base or slab, when the foundations are laid.
3. Frame, when the frame is up.
4. Lock-up or enclosed, when the walls, roof, windows and external doors are in.
5. Fixing or fit-out, when internal fittings such as cupboards, doors and fixtures are installed.
6. Practical completion, when the home is finished under the contract.

At each stage, the financier pays your builder directly for that stage of work. Payments aren't made to you, and they aren't made ahead of the work.

What happens at inspections and progress claims?

When a stage is finished, your builder sends a progress claim (an invoice for that stage). Here's what usually happens next:

• You check the claim against the contract and the work on site.
• You authorise the payment by signing the request, so the financier knows you're satisfied with the stage.
• The financier may arrange an inspection by a valuer to confirm the work matches the stage claimed.
• The payment is released directly to your builder.

If something doesn't look right, raise it with your builder before you authorise payment. If you want to change the plans after signing, talk to your broker first. Variations can change the cost of the build and may need to be approved before the financier will pay for them.

What happens at the final payment and completion?

The last stage is practical completion. Before the final payment is released:

• your builder issues the final progress claim
• you inspect the home, ideally with an independent building inspector, and list anything that needs fixing
• any occupancy or final certificate required in your state or territory is issued
• the financier may arrange a final inspection.

Once everything is in order, the final payment goes to your builder and the home is handed over to you. You must keep the completed home insured with conventional insurance. Your broker will explain how your payments are set during the build and what changes once it's complete.

Is HomePay an option for house-and-land builds?

HomePay is one option on selected Ijaar home finance for house-and-land builds with HomePay-accredited builders on a fixed-price contract. Your broker can explain how it works and whether it suits you.

General information only. It doesn't take into account your objectives, financial situation or needs. Fees, charges and credit criteria apply.