Everything You Need to Know About Renovation Construction Loans

You want to buy a house that needs work.

Not a knockdown rebuild or a new build from scratch, but a solid property where the location is right and the price reflects the fact that it needs a new kitchen, bathroom, or extension before it works for you. The challenge is that most lenders won't fund both the purchase and the renovation under standard home loan products. That's where construction finance specifically structured for purchase-to-renovate projects comes in.

What Construction Finance for a Renovation Project Actually Covers

Construction finance for a purchase-to-renovate scenario lets you borrow the cost of buying the property plus the cost of the planned renovation work under a single loan structure. You draw down the purchase amount at settlement, then access the renovation funds progressively as the work is completed and inspected. Lenders require a fixed price building contract with a registered builder and release funds according to a progress payment schedule tied to completed stages.

Consider a FIFO worker buying a home in Salisbury at the suburb's current median, planning a $90,000 renovation to add a second bathroom and update the kitchen before moving the family in. A standard home loan would cover the purchase price only. You'd need to fund the renovation separately, either from savings or by refinancing after settlement to access equity. Construction finance lets you roll the renovation cost into the loan from the start, so the funds are approved and available when the builder is ready to start work.

How the Progressive Drawdown Works

Lenders only charge interest on the amount drawn down at each stage, not the full approved loan amount. The funds sit in the loan account and are released to the builder as work reaches agreed milestones such as slab down, frame up, lock-up, fixing stage, and practical completion. Each drawdown requires a progress inspection by the lender's valuer or building inspector to confirm the stage is complete and the payment amount is justified.

This is different from paying the builder upfront or funding the job from a redraw facility. The lender controls the release of funds and verifies the work before each payment goes out. You make interest-only repayments during construction on whatever portion of the loan has been drawn down, then switch to principal and interest repayments once the renovation is finished and you've moved in. Some lenders require you to commence building within a set period from the disclosure date, typically six months, so the approval doesn't sit unused.

What Lenders Need Before Approving the Loan

You'll need a fixed price building contract with a registered builder, council approval for the renovation work if required, and detailed plans showing what's being built or altered. Lenders won't accept cost-plus contracts or owner-builder arrangements for standard construction finance products. SGB and STG, for instance, cap owner-builder finance at 60% LVR, which rules it out for most FIFO workers buying with a modest deposit.

The contract needs to include a clear progress payment schedule that breaks the job into defined stages with a dollar amount attached to each. The lender uses this schedule to structure the progressive drawdown. If the renovation requires a development application or council approval because you're extending the building envelope or changing the use of a room, that approval needs to be in place before the loan can settle. Lenders won't fund a project where council approval is pending.

How LVR is Calculated When You're Buying and Renovating

The loan-to-value ratio is calculated against the expected value of the property after the renovation is complete, not the purchase price. The lender orders a valuation that assesses two figures: the current market value as-is, and the projected value once the renovation work described in the plans and contract is finished. Your deposit is measured against that completed value.

If you're buying in Andrews Farm and the as-is value is $650,000, the purchase price is $640,000, and the renovation budget is $80,000, the lender will value the completed property. If the valuer assesses the post-renovation value at $750,000 and you're borrowing $720,000, your LVR is 96%. That puts you over the 95% threshold where most lenders cap lending for construction projects, so you'd either need a larger deposit or a smaller renovation scope to bring the LVR down.

SGB and STG allow up to 95% LVR inclusive of lender's mortgage insurance for fixed price build contracts, which includes purchase-to-renovate scenarios. Without LMI, the maximum LVR drops to 80%. FIFO workers in mining, resources, and construction roles are not eligible for occupation-based LMI waivers, so if your deposit puts you above 80% LVR, you'll be paying LMI on the full loan amount unless you qualify under the First Home Guarantee Scheme.

First Home Guarantee and Renovation Construction Loans

The First Home Guarantee Scheme lets eligible first home buyers purchase with a 5% deposit without paying LMI. Income caps and place limits were removed in January 2026, so high-earning FIFO workers are no longer excluded. Property price caps still apply and vary by location across South Australia. CBA's LMI waiver product, which goes up to 89.99% LVR for certain professionals, explicitly excludes land and construction loans, so it's not an option for purchase-to-renovate finance even if you hold a qualifying credential.

If you're a first home buyer using the scheme, confirm with your broker that the lender you're applying through participates in the program and that the post-renovation property value sits within the SA price cap. Not every lender offering construction finance also participates in the guarantee scheme.

When the Numbers Don't Support the Renovation

Sometimes the valuer's assessment of the completed property comes in lower than expected, and the numbers don't work. If the as-is value plus renovation cost exceeds the projected completed value by a meaningful margin, lenders see that as overcapitalisation and either reduce the approved loan amount or decline the application outright. The project needs to make sense on paper from the lender's perspective, which means the finished property should be worth at least what you've spent buying and renovating it.

In a scenario where you're buying a dated home in Elizabeth Vale for $680,000 and planning $100,000 in internal renovations, the valuer might assess the completed value at $760,000 based on recent comparable sales in the suburb. That's $20,000 short of your total outlay. The lender will either cap your borrowing at a lower LVR or suggest scaling back the renovation scope to bring the spend in line with the likely end value. This is one reason working with a broker experienced in construction loans and the South Australian market makes a practical difference during the planning stage, before you've signed a building contract.

Interest Rates and Fees on Construction Loans

Construction loan interest rates are typically the same as standard variable home loan rates from the same lender, but you'll pay additional fees that don't apply to a basic purchase loan. Most lenders charge a progressive drawing fee each time funds are released to the builder, usually between $150 and $400 per drawdown. With five or six progress payments over a three-to-four-month renovation period, that's an extra $900 to $2,400 in fees on top of the standard application and settlement costs.

You'll also pay for progress inspections, either directly to the valuer or as part of the lender's drawing fee. During the construction or renovation phase, you're making interest-only repayments on whatever portion of the loan has been drawn down. Once the work is complete and you've received the certificate of occupancy or final inspection sign-off, the loan converts to principal and interest repayments based on the full loan amount. Some lenders let you lock in a fixed rate once construction is finished, others require you to stay on a variable rate during the build phase then switch afterwards.

Timing and Serviceability When You're on a FIFO Roster

Lenders assess your income the same way for construction finance as they would for a standard home loan for FIFO workers. Suncorp shades non-essential services overtime and allowances to 80% where it's been earned continuously for six months or more. Bankwest uses a dedicated FIFO income verification formula: total hours per cycle multiplied by your lowest hourly rate, multiplied by working cycles per year. The way your income is treated directly affects how much you can borrow, and construction loans don't get special treatment on serviceability.

One timing consideration specific to FIFO workers is that you need to be available or have someone you trust available to liaise with the builder and sign off on progress payments if you're on-site during the build. Most builders and lenders can work around a roster if you set expectations early, but if you're flying in and out on a 14/14 or 20/8 cycle and the builder needs access or a decision, someone needs to be contactable. This is less of an issue for internal renovations where the house is still liveable, more of a factor if the scope involves major structural work that makes the property unliveable during construction.

You're buying a home that needs work because the location suits your family and the price reflects the renovation cost you're willing to carry. Construction finance for a purchase-to-renovate project gets both the purchase and the building work funded under one loan structure, with the renovation budget drawn down progressively as the job moves through defined stages. The lender calculates your LVR against the completed value, requires a fixed price contract with a registered builder, and releases funds only after inspecting the work at each stage. Call one of our team or book an appointment at a time that works for you.

Frequently Asked Questions