When it comes to building a new home, most people are excited about floorplans and facades, not finance paperwork. But before you start picking out tiles and tapware, there’s one thing that can cause unnecessary stress: misinformation.
From what kind of deposit you need, to how repayments work during construction, there are plenty of building loan myths that trip people up before they even get started. So, let’s clear the confusion. Below, we break down the most common misconceptions around home building finance and reveal the construction loan facts that every buyer should know.
Whether you’re a first home buyer or planning your family’s forever home, knowing the truth will help you make confident, informed decisions.
Myth 1: “I need a massive deposit to build”
Fact: You don’t need a 20% deposit to get started. In fact, many first home buyer loan options allow you to build with as little as 5%.
Thanks to schemes like the First Home Guarantee, eligible first-home buyers may be able to avoid paying Lenders Mortgage Insurance (LMI) which is typically required when your deposit is less than 20%. These government-backed programs can significantly reduce upfront costs and help you get into your new home sooner.
An experienced mortgage broker, like Loan Gallery, can talk you through what options you may qualify for and how to make your deposit stretch further.
Myth 2: “I can’t get a loan unless I’ve already bought the land”
Fact: Whether you’re buying land first or considering a house-and-land package, there are loan options available for both.
You don’t need to have everything lined up before speaking to a broker. In fact, involving a broker early can help you structure your finances to suit your timeline. Maybe you’ve already found the perfect block, or maybe you’re still deciding. Either way, you can still explore your home building finance options without delay.
Myth 3: “Construction loans are too complicated”
Fact: Construction loans are different to standard home loans but they’re not overly complicated.
Here’s how it works: instead of receiving the full loan upfront, the funds are released in stages, known as progress payments or drawdowns. This matches key stages of the build, like slab, frame, lock-up, and completion. You only pay interest on the amount drawn down at each stage, rather than the total loan amount from day one.
This approach helps manage costs, reduces risk for lenders and buyers, and ensures that funds are aligned with building milestones. With the right guidance, home building finance can be straightforward.
Myth 4: “I’ll have to start repaying the full loan straight away”
Fact: During construction, you’ll typically only pay the interest on the amount drawn down so far.
This is one of the lesser-known construction loan facts. Let’s say your total loan is $500,000, but the builder has only drawn $100,000 for the slab stage you’ll only be paying interest on that $100,000. Full repayments usually begin once the home is complete and the final progress payment has been made.
This structure can make the building phase more manageable from a cashflow perspective, especially if you’re paying rent at the same time.
Myth 5: “You only need to budget for the house price”
Fact: It’s not just about the sticker price on your builder’s brochure. There are additional costs that come into play with new builds, site works, landscaping, council fees, and upgrades are common extras that can catch people off guard.
A good mortgage broker will help you understand your complete budget, not just the build contract. That way, you can plan for the full picture not just the house itself and avoid surprises down the track.
Bonus Myth: “I don’t need a broker, I’ll just go with my bank”
Fact: Your bank may not always offer the best solution for your building journey.
Brokers, like the team at Loan Gallery, work with a wide range of lenders and understand the ins and outs of home building finance. They know which lenders are construction-friendly, what documentation is needed, and how to negotiate terms that suit your situation.
In many cases, a broker can save you time, money, and stress especially when navigating the specifics of a first home buyer loan or construction loan.
Why Busting These Myths Matters
Understanding the truth about building loan myths empowers you to move forward with confidence. Building a home is a major milestone but it doesn’t need to be a financial mystery.
The right advice early on can:
- Save you thousands in unnecessary costs
- Help you secure government grants or guarantees
- Prevent costly mistakes during the build
- Put you in a stronger financial position for the long term
And most importantly, it can turn what feels overwhelming into something exciting.
Ready to Talk?
Building your dream home shouldn’t be built on misinformation. If you’re unsure what’s fact or fiction, talk to the expert brokers at Loan Gallery, we’ll help you understand your options and make the process feel simple.
Let’s bust the building loan myths together, get in touch today.
