Financing a new build works differently from a standard home loan, and understanding the rhythm of progress payments early makes the whole journey far less stressful. If you are planning a project on the Mornington Peninsula, here is how construction finance and staged payments typically unfold from contract to handover.
Why a construction loan is different
When you buy an existing house, the bank hands over the full purchase price in one lump sum at settlement. A construction loan behaves quite differently. Instead of one payment, the lender releases funds in stages as your build progresses, matching the money to the work actually completed on site.
During the build you generally pay interest only on the amount drawn down so far, not the full loan. That means your repayments start small and grow as each stage is invoiced, then convert to a standard principal-and-interest loan once construction finishes. It is a sensible structure, because you are never paying interest on money the builder has not yet used.
The standard progress payment stages
Under a Victorian domestic building contract, payments are tied to defined construction milestones rather than dates. The exact percentages can be negotiated within legal limits, but a typical fixed-price contract for a new home follows a familiar pattern.
- Deposit — paid on signing. Victorian law caps the deposit on domestic building work, so be wary of any builder asking for an unusually large upfront amount.
- Base stage — footings, slab or subfloor complete. On the sloping blocks common around Arthurs Seat and McCrae, this stage can carry more cost due to engineering and site works.
- Frame stage — the timber or steel frame is up and approved.
- Lock-up (enclosed) stage — external walls, roof, windows and external doors are in, so the home can be secured.
- Fixing stage — internal linings, cabinetry, skirting, doors and fittings are installed.
- Completion (handover) — the final payment, made when the home is finished and ready for occupation.
Each time a stage is reached, the builder issues a claim, the bank sends a valuer to confirm the work, and funds are released. You typically cover the deposit and any early costs from your own savings, with the loan drawdowns beginning around base stage.
How the money actually moves
The sequence is straightforward once you have seen it. Your builder completes a stage and issues an invoice, you authorise the claim, and your lender arranges a valuation before paying the builder directly. Nothing is released until the bank is satisfied the work matches the claim, which protects both you and the lender.
Because valuations take a few business days, it pays to submit each claim promptly and keep your broker or lender in the loop. Delays in approving a claim can stall the trades scheduled for the next stage, so responsiveness on your side genuinely keeps the job moving.
Where your deposit and savings fit in
Most lenders want to see your own contribution used first before they start drawing down the loan. So your genuine savings, plus any land equity, usually fund the deposit and initial costs. Factor in that you will also be servicing existing commitments during the build, and if you are renting elsewhere on the Peninsula, you carry both costs until you move in.
Budgeting beyond the build contract
A fixed-price contract covers the construction, but a realistic budget accounts for the extras that sit outside it. Building near Port Phillip Bay brings its own considerations, and coastal blocks in Safety Beach, Rye or Rosebud can attract added requirements.
- Council planning and building permits through Mornington Peninsula Shire.
- Bushfire Attack Level (BAL) assessments and any required construction upgrades for bush-adjacent lots.
- Site costs such as soil tests, connections and retaining on sloping ground.
- Coastal detailing to resist salt air and coastal winds, including corrosion-resistant fixings and glazing.
- Landscaping, driveways, fencing and window furnishings, which are often excluded.
As a rough guide these allowances vary widely from block to block, so ask your builder for a clear breakdown of what the contract includes and what you will need to fund separately. A transparent scope prevents nasty surprises at fixing stage.
Protecting yourself along the way
Every builder you engage should be a registered building practitioner with the Victorian Building Authority, and domestic building insurance is required on projects above the legislated threshold. This insurance protects you if the builder cannot complete the work. Read your contract carefully so you understand the payment schedule, the fixed-price inclusions, and how variations are quoted and approved before work proceeds.
A good local builder will walk you through the payment schedule before you sign. At DARC Building Group, part of guiding clients through our process is making sure the finance milestones and the construction stages line up, so cash flow stays predictable from base to handover.
Getting the finance right from the start
Speak with a mortgage broker experienced in construction lending early, ideally before you finalise your design. They can confirm your borrowing capacity, explain how interest-only drawdowns affect your budget, and make sure your loan structure matches the staged payments in your contract. Pairing the right finance with a builder who offers a full range of building services means fewer gaps between what the bank funds and what the job actually costs.
If you are weighing up building a home in Dromana and want the numbers to make sense from day one, we are happy to explain how the stages work for your block. Get in touch to talk through your plans and map out a payment schedule you can build with confidence.
Frequently Asked Questions
How does a construction loan differ from a normal home loan?
A construction loan releases funds in stages as your build reaches defined milestones, rather than in a single lump sum. You usually pay interest only on the amount drawn down so far, so repayments start small and grow as the build progresses. Once construction is complete, the loan typically converts to a standard principal-and-interest mortgage.
What are the typical progress payment stages when building a home in Victoria?
A standard domestic building contract usually breaks payment into a deposit followed by base, frame, lock-up, fixing and completion stages. Each stage is invoiced only once that work is finished, and your lender confirms the work before releasing funds. The exact percentages are set in your contract within the limits allowed under Victorian law.
Is my deposit protected when building in Dromana?
Victorian law caps the deposit a builder can request on domestic building work, so you should be cautious about any unusually large upfront demand. Projects above the legislated threshold also require domestic building insurance, which protects you if the builder cannot complete the job. Always confirm your builder is registered with the Victorian Building Authority before signing.
What costs sit outside the fixed-price build contract?
Common extras include council planning and building permits, soil tests, site and retaining costs on sloping blocks, and BAL bushfire upgrades. Landscaping, driveways, fencing and window furnishings are often excluded too. Coastal blocks near the bay may also need corrosion-resistant detailing, so ask your builder for a clear breakdown of inclusions before you commit.