Finance Approval, Construction Loans and Funding the Build

A building contract and a construction loan operate alongside each other, but they are not the same agreement. Your builder is governed by the building contract; your lender is governed by the loan documents. Homeowners can be caught between them.

Finance approval may contain conditions

An approval in principle is not always unconditional authority to draw funds. Understand valuation requirements, contribution requirements, expiry dates and any documents the lender still needs.

2. Check the finance condition in the building contract

If your contract contains a finance condition, identify the amount, lender or criteria, deadline and notice requirements. Many contracts provide that if you do not give written notice by a specified date that finance has been refused, the condition is deemed satisfied and the contract becomes unconditional. This means that if you take no action - even if finance has genuinely been refused - you may be bound by the contract as though finance were approved. Diarise the deadline immediately and act well before it expires. Do not assume that inability to obtain finance automatically ends the contract.

Construction loans usually draw progressively

Lenders commonly release funds as construction advances. Their stage definitions and administrative processes may not perfectly match the building contract.

The lender's inspection protects the lender

A bank-appointed valuer or inspector generally assists the lender in deciding whether to release funds. That process is not a substitute for your own assessment of whether a contractual payment is properly due.

Variations may need to be funded by you

A lender may not increase the approved facility simply because you approve a variation. Understand how variations, allowance overruns and unexpected site costs will be funded.

Keep a contingency

Construction can generate legitimate additional costs. A financial buffer reduces the risk that a relatively modest variation causes a funding crisis halfway through the project.

Timing mismatches can create pressure

A builder may have a contractual right to payment before the lender completes its internal drawdown process. Know the payment deadlines and lender turnaround times before the first claim arrives.

Never sign merely because finance is 'being sorted'

If finance is fundamental to your ability to perform the contract, ensure the contractual position is understood before becoming unconditionally bound.

Questions to ask

Is finance unconditional? What conditions remain? How do lender stages compare with contract stages? Who funds variations? What is the drawdown process and timing? What happens under the contract if finance is not obtained?

The key lesson

Your loan should support the building contract, not dictate assumptions about it. Understand both documents and the gap between them.

Before You Sign

This guide provides general educational information for South Australian homeowners. It is not personalised legal advice. The effect of any issue depends on the wording of your own contract, schedules, Special Conditions, plans, specifications and the facts of the project. A good builder and a well-understood contract should work together. Before committing to one of the largest financial transactions you may ever undertake, consider having the actual contract reviewed so you understand the obligations, notice requirements and consequences before they are tested on site.

Before You Build. One Signature. One Chance.