Building a new home through construction finance means working within a framework designed to protect both you and the lender.
Construction loans operate differently from standard home loans because funds release progressively as your build reaches specific stages. That staged release triggers regulatory requirements at both state and federal level, covering everything from building permits to valuation protocols. For ADF members building in Victoria, understanding these regulations means knowing what your lender will require, what your builder must provide, and where delays typically occur.
Fixed Price Building Contracts and Lender Requirements
Most lenders will only approve construction finance when you have a fixed price building contract with a registered builder. The contract must specify the total build cost, include a detailed scope of works, and outline a progress payment schedule tied to defined construction stages. In Victoria, your builder must hold current registration with the Victorian Building Authority, and for projects exceeding $16,000, they must also provide domestic building insurance.
Consider a scenario where an Army member stationed at Puckapunyal secures land in Seymour and engages a registered builder for a $480,000 fixed price contract. The lender requires a copy of the building contract, council approval for the development application, and confirmation of the builder's registration and insurance before releasing any funds. The contract breaks the build into six stages: slab down, frame up, lock-up, fixing, practical completion, and final completion. Each stage must pass inspection before the next drawdown releases.
Council Approval and Development Application Requirements
You cannot commence building or access construction funding without council approval. In Victoria, this means submitting a development application to your local council, which assesses the proposed build against zoning regulations, building codes, and environmental overlays. The council issues a building permit once they approve the application, and your lender will request a copy of that permit before settlement.
Processing times vary by council. In regional Victorian areas with smaller volumes, approval might take six to eight weeks. In growth corridors around Melbourne, expect three to four months. Your construction loan contract typically requires you to commence building within a set period from the disclosure date, often six to twelve months. If council approval delays push you past that window, you may need to reapply or renegotiate terms with your lender.
Ready to get started?
Book a chat with a Finance & Mortgage Brokers at Defence Loans today.
Progressive Drawdown and Inspection Protocols
Construction funding releases in instalments as the build progresses. After each stage completes, your builder requests a progress payment. The lender then arranges a progress inspection, usually conducted by an independent valuer or building inspector who verifies that the completed work matches the stage described in your contract. Once the inspection confirms completion, the lender releases funds to the builder, minus any retention amounts specified in your agreement.
Between drawdowns, you only pay interest on the amount drawn down so far, not the full approved loan amount. The lender will charge a progressive drawing fee for each inspection and drawdown, typically $300 to $500 per stage. Six drawdowns across a build means around $2,000 to $3,000 in total drawing fees, which you should factor into your upfront costs.
Owner Builder Finance and Additional Compliance
If you choose to act as an owner builder rather than engaging a registered builder, expect stricter lending criteria and additional regulatory obligations. In Victoria, you need an owner builder certificate of consent from the Victorian Building Authority if the project value exceeds $12,000. Most lenders either refuse owner builder finance entirely or require a minimum 30% deposit, detailed costings for every trade, and proof that you hold the necessary insurance.
Owner builders must also demonstrate they can manage sub-contractors, coordinate inspections, and ensure work meets building code standards. The lender may require statutory declarations from plumbers, electricians, and other licensed trades confirming their involvement and compliance. Without a fixed price building contract, the lender relies on your cost plus contract or itemised budget, which increases their risk and reduces your borrowing capacity.
Retention Clauses and Final Drawdown Conditions
Most construction loan contracts include a retention clause, holding back a percentage of each progress payment until practical completion or final completion. Typical retention amounts range from 5% to 10% of each stage payment. The builder receives the retained amount once they rectify any defects identified during the final inspection and provide you with all required compliance certificates.
In Victoria, those compliance certificates include electrical safety certificates, plumbing compliance certificates, and building surveyor sign-off. Your lender requires copies of these before releasing the final drawdown. The builder must also provide you with a certificate of occupancy issued by the council, confirming the home meets building standards and is safe to occupy. Until you receive and submit these documents, the final retention remains held.
Land and Construction Package Considerations for ADF Members
Many ADF members purchasing in Victoria opt for a land and construction package, where they buy suitable land and arrange construction finance simultaneously. This structure means managing two settlements: one for the land, and staged drawdowns for the build. Your lender may offer a construction to permanent loan, where the construction phase transitions automatically to a standard home loan once the build completes.
During construction, you typically make interest-only repayment options on funds drawn down, then convert to principal and interest repayments once you move to the permanent loan phase. Some lenders also offer the option to make additional payments during construction to reduce the debt before conversion, though this depends on your loan structure and whether you have a fixed or variable construction loan interest rate.
Call one of our team or book an appointment at a time that works for you to discuss how construction finance regulations apply to your specific build and location in Victoria.
Frequently Asked Questions
Do I need a fixed price building contract to get construction finance?
Most lenders require a fixed price building contract with a registered builder before approving construction finance. The contract must detail the total build cost, scope of works, and progress payment schedule tied to defined stages.
How does progressive drawdown work during a construction loan?
Funds release in instalments as your build reaches specific stages. After each stage, the lender arranges an inspection to verify completion, then releases payment to the builder. You only pay interest on the amount drawn down, not the full loan amount.
What council approvals do I need before starting construction in Victoria?
You need council approval for your development application, which results in a building permit. Your lender requires a copy of this permit before settlement, and you cannot commence building without it.
Can ADF members get owner builder finance in Victoria?
Owner builder finance is available but requires stricter criteria, typically a minimum 30% deposit, an owner builder certificate from the Victorian Building Authority, and detailed costings. Many lenders refuse owner builder applications entirely.
What documents does the builder need to provide at final completion?
The builder must provide electrical safety certificates, plumbing compliance certificates, building surveyor sign-off, and a certificate of occupancy from the council. Your lender requires these before releasing the final retention amount.
