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 advisers work for you, not the bank, and ensure you get the best possible deal while making the process smooth and stress-free.
The construction loan process
Six steps from your first meeting to the final drawdown.
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 and plans with detailed specifications for the project
- Insurance, specifically 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 and settlement
Construction loans work through progressive drawdowns. Some of these stages are:
- Deposit and foundation stage
- Framing stage
- Lock-up stage (windows and doors installed)
- 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 Kāinga Ora's First Home Loan, it may be possible to secure funding with 5–10%.
How much can I borrow?
Your borrowing capacity depends on your income, existing debts, deposit and the total cost of the build including contingencies. Debt-to-income limits generally cap owner-occupier borrowing at around 6 times gross annual income, and banks assess affordability at a test rate well above the rate you would actually pay.
Our repayment calculator will show you what different loan sizes look like month to month, and a 30 minute call will give you a realistic number for your situation.
Can I borrow 100% for my build?
Generally no. Banks expect a deposit, typically 10–20%, and want to see you have contingency funds available for cost escalations during construction. Where you already own the land outright, that equity can often count towards the deposit requirement.
Common mistakes to avoid
Three things that most often cost people time and borrowing power on a build.
Expert tips: becoming mortgage-free faster
Checklist for your construction finance application
Work through these before you apply so the process runs as smoothly as possible.
- Get your finances in order
- Maintain clean bank account conduct
- Reduce debt and unnecessary spending
- Confirm deposit sources (KiwiSaver, cash, gifts)
- Get the paperwork ready
- Apply for pre-approval
- Get a registered valuation
- Organise a building contract and 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. You can also read more about build and construction loans.
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