If you’re planning to build your dream home from the ground up, a construction loan can provide the funding you need—tailored to the unique nature of building projects in New Zealand.
Unlike traditional home loans that release the full loan amount at once, construction loans are paid out in stages as the build progresses. This protects you, the bank, and ensures your builder completes the work as agreed.
Key Features of a Construction Loan
Progressive Payments
Funds are released in stages (typically 4–6) as construction milestones are met—such as foundation, framing, roofing, and final handover.
Interest-Only During Build
You only pay interest on the amount drawn down, helping manage cash flow during the build phase.
Floating Interest Rates
Most construction loans operate on a floating (variable) rate during construction. Some lenders offer offset or revolving features to help minimise interest costs.
Lower Deposit Requirements
New builds often qualify for 10% deposits, especially when combined with First Home Loan or KiwiSaver support.
Construction Loan Process
1. Pre-Approval
Secure conditional loan approval before finalising plans—this sets your budget and shows the builder you're ready.
2. Finalise Building
Contract Choose between a turnkey (fixed price and completed build) or build-only contract. Your broker will guide you on lender preferences.
3. Stage Payments
As your builder completes each stage, they invoice the bank. You approve the invoice, and the bank releases the funds.
4. Progress Inspections
The bank may send an inspector or valuer to verify completion of each stage before releasing payments.
5. Completion and Conversion
Once construction is finished and the Code Compliance Certificate (CCC) is issued, your loan is converted into a standard home loan with fixed or floating options.
Why Consider a Construction Loan?
· Ideal for first home buyers wanting a new build
· Greater design freedom to customise your home
· Often lower deposit requirements and access to First Home Grant
· Potentially lower maintenance and better energy efficiency with a brand-new home
· May save on LVR restrictions for new builds compared to existing homes
What You Need to Qualify
Fixed-Price Building Contract
This ensures cost certainty and is required by most lenders. Both turnkey and build-only contracts are accepted.
Building Consent
Council-approved plans and permits must be in place before the loan is fully approved.
Contingency Funds
Lenders often expect an additional 10–20% buffer in case of unexpected costs or changes during construction.
Strong Financial Position
Your income, credit history, and deposit amount still matter—just like with any mortgage.
How Lemon Tree Finance Can Help
At Lemon Tree Finance, we simplify the process by:
· Helping you choose between turnkey and build-only options
· Working closely with your builder and bank to manage progress payments
· Ensuring the loan structure supports your long-term goals
· Securing competitive interest rates and cashbacks where possible
Book a free consultation with Lemon Tree Finance and let us help you finance your dream home—without the stress.
