Building Finance Guide: Your Path to Building Your Dream Home

Why Use a Mortgage Adviser for Building Finance?

Unlike traditional home loans, building finance requires a tailored approach. Each bank has different lending criteria, and securing approval can be more challenging due to staged payments, valuations, and financial structuring. At Journey Mortgages, our adviser’s works for you—not the bank—and ensures you get the best possible deal while making the process smooth and stress-free.

Construction Loan Process

Step 1: Meeting Your Adviser

The first step is to meet with your mortgage adviser to assess your financial situation and discuss your building plans. You’ll need to provide:

• Identification
• Proof of income
• Bank statements
• Evidence of deposit (including KiwiSaver and gifts)
• A signed build contract and fixed-price contract (where applicable)

Your adviser will create a strategy to get your finances in the best shape for approval.

Step 2: Application

Once all documents are prepared, your adviser will submit a loan application to the lender. Key factors that banks consider for construction loans include:

• Your financial ability to fund the project (contingencies)
• The total cost of construction
• The required deposit (typically 10-20%)
• Whether you’re building a turnkey or progressive payment home

Step 3: Conditional Approval

If successful, you’ll receive a conditional approval, meaning the bank supports your loan in principle but needs additional requirements. Common conditions include:

• Registered Valuation: To confirm the future value of the completed home.
• Building Contract & Plans: Detailed specifications for the project.
• Insurance: Builder’s risk insurance.
• Deposit Verification: Proof of sufficient funds to cover costs.

Step 4: Unconditional Approval

Once all conditions are met, your loan becomes unconditional. At this stage:

• Your adviser will negotiate the best deal (interest rates, loan structure).
• Cash contributions may be available (varies by lender).
• The loan documents are sent to your solicitor for final review.

Loan structure is critical—many borrowers choose fixed vs floating rates, a revolving credit facility, or split loans to manage cash flow effectively.

Step 5: Drawdowns & Settlement

Construction loans work through progressive drawdowns some of these stages are:

1. Deposit & Foundation Stage
2. Framing Stage
3. Lock-Up Stage (windows/doors installed)
4. Completion Stage

Once the final payment is made, your mortgage transitions into a standard home loan.

Step 6: Ongoing Support

Your adviser will continue to guide you beyond settlement, assisting with loan structuring, rate negotiations, and refinancing when needed.

FAQs About Construction Finance

How Much Deposit Do I Need?

Most banks require a minimum 10% deposit for construction loans. However, under certain schemes, such as Kainga Ora’s First Home Loan, it may be possible to secure funding with 5-10%.

How Much Can I Borrow?

Your lending capacity depends on income, expenses, and the bank’s credit policy. A general rule of thumb is 6x your income, but additional factors like debt and project costs play a role.

Can I Borrow 100% for My Build?

Not typically. Most banks require a minimum contribution from the borrower, unless you secure a special lending exemption.

Common Mistakes to Avoid in Construction Finance

• Not Getting Pre-Approved First

Before signing a building contract, get pre-approved. This ensures you understand the budget, deposit requirements, and risks involved.

• Poor Account Conduct

Banks assess financial discipline. Ensure your accounts are in good order, avoid missed payments, and check your credit rating at Centrix before applying.

• Using Buy Now, Pay Later Schemes

Banks count BNPL debt as ongoing expenses, which can reduce borrowing power.

Expert Tips: Becoming Mortgage-Free Faster

• Increase Repayments: Paying slightly more each month can shave years off your loan.
• Consider a Revolving Credit Facility: Great for managing unexpected costs during construction.
• Avoid Consumer Debt: Pay down credit cards and personal loans before applying.
• Get a Flatmate/Boarder: Rental income can accelerate mortgage repayments.

Checklist for Your Construction Finance Application

✅ Maintain clean bank account conduct

✅ Reduce debt & unnecessary spending

✅ Confirm deposit sources (KiwiSaver, cash, gifts)

✅ Apply for pre-approval

✅ Get a registered valuation

✅ Organise a building contract & insurance

✅ Engage a solicitor for legal review

Final Thoughts

Construction finance offers flexibility but requires careful planning. The key to success is working with an expert mortgage adviser who can navigate the complexities, negotiate the best deals, and support you through the entire building process.

If you’re ready to start your home-building journey, let’s talk!