Simple hacks to fund a knockdown rebuild project

A knockdown rebuild means you're buying land with an existing dwelling, demolishing it, and building something new on the same site.

The finance structure looks different from a standard home loan because funds are released in stages as the build progresses. You'll need a construction loan that covers both the purchase and the build, or two separate facilities if you already own the land. Lenders assess your application based on the finished property value, not what's standing there now, and they'll want signed contracts, council approval, and a registered builder before settlement.

How construction finance works for a knockdown rebuild

You borrow against the end value of the completed home, not the existing structure. The lender approves a total loan amount that covers the land purchase and the building contract, then releases funds in stages as construction hits specific milestones. Between drawdowns, you're charged interest only on what's been drawn, not the full approved amount.

Consider a constable buying a dated house on suitable land in an inner suburb. The existing dwelling might be worth little, but the land value plus the new build pushes the total project to a figure that supports a higher loan amount. The lender orders a valuation based on the completed plans, and that figure determines how much you can borrow. You'll need a deposit against the total project cost, usually at least 10%, though low deposit loans with lender's mortgage insurance can reduce that to 5% in some cases.

Most lenders require a fixed price building contract with a registered builder. Owner builder finance exists but comes with stricter lending criteria and higher deposits. The contract should include a progress payment schedule tied to construction stages: slab down, frame up, lock-up, fixing, and practical completion. Your lender matches their drawdown schedule to these stages, releasing funds after each progress inspection confirms the work is done.

What lenders look for in a construction loan application

Lenders want proof that the project is viable and that you can service the loan once construction is finished. That means a signed building contract, council approval or a development application in progress, and evidence that you can afford repayments based on the final loan amount at current variable rates.

You'll submit the building contract, which should be a fixed price contract to avoid cost blowouts that affect your borrowing. The lender will order a valuation based on the plans and specifications. If the valuation comes in lower than expected, you'll either need to increase your deposit or reduce the build cost. Council approval or at least a development application lodged with council is usually required before settlement, though some lenders will settle on the land purchase while the DA is still being assessed if you can show it's progressing.

Shift work can complicate income verification, but most lenders accept base salary plus regular allowances when calculating serviceability. If you're on probation or recently promoted, some lenders will still approve construction finance if your employment history in law enforcement is solid. The application process takes longer than a standard home loan because the lender's credit team will review the building contract, the valuation, and the builder's credentials before issuing formal approval.

Managing the progressive drawdown and interest charges

Funds are released in instalments as the build progresses. After each stage is completed, the builder requests payment, the lender arranges a progress inspection, and once the inspector confirms the work matches the claim, the lender releases that drawdown directly to the builder.

During construction, you're charged interest only on the amount drawn down so far. If the total loan is $600,000 and $150,000 has been released, your interest charges are calculated on $150,000, not the full amount. This keeps repayments lower during the build, which matters when you're still paying rent or living elsewhere. Some lenders also charge a Progressive Drawing Fee each time funds are released, usually a few hundred dollars per drawdown.

Once construction is finished and you've received practical completion, the loan converts to a standard principal and interest home loan, or you can negotiate interest-only repayment options for a set period if that suits your circumstances. The conversion happens automatically in most cases, though you'll need to provide the lender with final paperwork from the builder and council before they release the last payment.

When the DA or build timeline affects settlement

Some lenders require council approval before they'll settle on the land purchase. Others will settle with a DA lodged, provided you commence building within a set period from the Disclosure Date, often six to twelve months. If demolition or construction is delayed beyond that window, the lender may reassess the loan or require an extension, which can trigger a new valuation or contract review.

In our experience, police officers working rotating rosters appreciate lenders who don't require you to attend settlement or builder meetings in person during business hours. Most of the process can be handled remotely, but you'll still need to coordinate with the builder on progress payments and any variations that come up during construction. A broker who understands shift work can manage communication with the lender and builder so you're not chasing paperwork between night shifts.

Linking the land purchase and construction into one facility

Most construction loans are structured as a land and construction package, meaning one approval covers both the purchase and the build. You settle on the land first, then the construction portion of the loan is drawn down in stages. This avoids the need for two separate loans and keeps the process simpler.

If you already own the land, you're applying for construction funding only. The lender will still value the finished property and assess your serviceability based on the final loan amount, but the deposit requirement is calculated differently because you're not funding a purchase. Some borrowers release equity from the land to cover the building contract, while others use savings or sale proceeds from another property.

Police-specific lending policies can make a difference during construction. Some lenders waive lender's mortgage insurance for law enforcement borrowers at higher loan-to-value ratios, which reduces upfront costs and frees up cash for variations or landscaping once the build is finished. That waiver applies to the total project cost, not just the land component, so it can save several thousand dollars on a knockdown rebuild.

Call one of our team or book an appointment at a time that works for you. We'll review your building contract, run the numbers based on current lending policies, and line up a lender who can settle on your timeline without requiring you to take leave every time a drawdown is due.

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