First Home Construction Case Study

A construction loan approval isn’t necessarily the best construction loan.

These first home buyers came to us after already receiving an approval from their existing bank, one of the major blue banks.

On the surface, they had what they needed.

They had purchased their first block of land in the Northern Territory, signed their construction contract and had an approved loan. They were self employed and had a parent on maternity leave.

But when we looked underneath the approval, there were some pretty significant problems.

Their existing bank was offering them a loan at 91% LVR with an interest rate of 7.49%, along with approximately $50,000 in Lenders Mortgage Insurance (LMI).

And there was another major condition.

The bank required them to completely clear approximately $70,000 of HECS-HELP debt before they could proceed. This was provided to them as a last minute extra condition on their loan approval. LAST MINUTE GUYS!

For first home buyers with two young children, this was going to have a huge impact on their savings after settlement.

They were about to start building their dream home with very little financial buffer left.

The valuation changed everything

The first issue was the valuation.

With construction finance, many people understandably assume that the value of the land plus the cost of construction will equal the value of the finished property.

Unfortunately, that’s not always the case.

This was particularly relevant for our clients because the property was located in the Northern Territory, where construction costs don’t necessarily translate dollar-for-dollar into the end value of the property.

The valuation came in below the total land and construction costs.That pushed the proposed LVR to around 91% with their existing lender.

At that level, the clients were looking at approximately $50,000 in LMI (Lenders Mortgage Insurance) and an interest rate of 7.49%.

The higher LVR was also affecting the overall servicing position.

So although they had an approval, the structure wasn’t particularly attractive.

Then came the $70,000 HECS requirement

Their existing lender also required the clients to clear their approximately $70,000 HECS-HELP debt.

Because the bank couldn’t transfer the entire amount in one transaction, the clients started paying the debt down in $10,000 transfers.

They had reduced the balance significantly and had around $30,000 remaining.

That’s when they happened to come across The Broker Society.

They were just about to make the final transfers.

We asked them to pause.

Not because their existing bank couldn’t lend.But because we believed there could be a better way. We wanted to 100% make sure that no stone was left unturned before we let them proceed with their approval, which wasn’t quite fit for purpose.

So, we went back to the market

Rather than simply accepting the existing approval, we reviewed the entire scenario across our lender panel.

We looked at the construction contract, valuation, LVR, servicing, HECS-HELP debt, savings position and the clients’ overall circumstances.

Most importantly, we looked at lender policy.

And that’s where we found a significant difference.

We identified a lender that was prepared to accept the clients’ HECS-HELP debt under a special lending policy, meaning they didn’t need to use their remaining savings to clear it.

But that wasn’t the only improvement.

From 91% LVR to 89%

The new lending structure reduced the LVR from approximately 91% to 89%. We discussed with the clients that because they didn’t need to finish paying off their HECS as per the other lender condition, if they added a small amount extra of their savings to get their Loan to Value Ratio to 89% instead of 91% it would make a surprising difference to their outcome.

That relatively small change made a surprisingly big difference.

The clients’ LMI reduced by approximately $20,000.Instead of paying around $50,000 in LMI, they were looking at roughly $30,000.

That’s a $20,000 saving simply by getting the structure and lender right.

And then there was the interest rate.

Their existing bank was offering 7.49% at 91% LVR.

The new lender’s rate was in the low 6% range.

That’s a substantial difference when you’re talking about a large construction loan over many years. Compounding interest makes a massive difference, and at 1.3% lower, it was a big difference in the overall cost for these clients.

So the clients weren’t just saving on LMI.

They were potentially saving thousands more in interest while keeping their savings in their offset account. They needed a buffer, they needed a lower rate, and they almost accepted everything about their new loan that they didn’t want, because it was their only choice. Or so they thought.

The biggest win? They kept some of their savings.

This was probably the most important part of the entire outcome.The clients had two young children and were about to embark on building their first home.

Construction projects come with enough uncertainty without starting with an almost empty savings account. Life happens, and a buffer for the unexpected is important.

Their original lender’s requirement to clear the HECS debt would have taken a significant chunk of their remaining savings.

By finding a lender with a different approach to HECS-HELP debt, we were able to help them retain that money as a cash buffer.

So instead of:

7.49% interest rate

91% LVR

Approximately $50,000 LMI

HECS debt required to be cleared

Savings significantly reduced to almost nil….

We were able to structure the deal closer to:

Low 6% interest rate

89% LVR

Approximately $20,000 less LMI

HECS debt retained under lender policy

Savings retained as a buffer

That’s a very different financial position.

This is why lender policy matters. The important thing about this story isn’t that one bank was “bad” and another was “good”.

The existing bank had a policy. They had an approval.

The new lender had a different policy. They had an approval.

The first lender’s policy required the clients to clear their HECS debt.

The second lender had a policy that allowed us to structure the application without requiring that debt to be paid out.

The first lender’s valuation and LVR position resulted in a higher interest rate and significantly higher LMI.

Another lender offered a better outcome at a slightly lower LVR.

Same clients.

Same land.

Same construction contract.

Same income.

Very different lending outcome.

That’s the difference lender policy can make.Your bank doesn’t see the whole market. Your broker does.

This is one of the biggest advantages of using a mortgage broker for construction finance, fist home buyer, refinancing, investors , self employed, low doc and commercial lending.

Your existing bank will assess your application based on its lending policy.

It doesn’t necessarily have a reason to tell you:

“Actually, another lender might be able to offer you a lower rate, lower LMI and allow you to keep your HECS debt.”

That’s where a good mortgage broker can make a real difference.

Our job isn’t simply to get an approval.

It’s to understand your circumstances, understand the lender market and work out which lender is the best fit for your situation.

For these clients, that meant looking beyond the approval they already had.

And the result was a much stronger overall financial position.

Building your first home?

If you’re a first home buyer, buying land and building, or looking at a construction loan with HECS-HELP debt, don’t assume the approval from your existing bank is automatically the best option.

Valuations, LVR, LMI, construction costs, HECS debt, servicing and interest rates can all interact in ways that have a significant impact on your upfront contribution and your ongoing repayments.

And if you’re being asked to use a large portion of your savings to make the deal work, stop before you transfer the money.

There may be another lending solution available.

The lesson from this case?

An approval isn’t the end of the process. It’s the beginning of asking whether it’s actually the right approval.

The right mortgage broker will look beyond one lender’s answer.

They’ll look at the market, understand lender policy and consider the bigger picture, including what the loan means for your family, your savings and your financial position after settlement.

For these first home buyers, that meant:

A lower interest rate.

$20,000 less LMI.

A lower LVR.

Their HECS debt retained.

And thousands of dollars in savings kept safely in the bank.

That’s what a good lending strategy can do.

Important Information

This article was written by Kate Sadler, Mortgage Broker – Noosaville, on 11 August 2026 and was current at the time of writing. Lending policies, rates, fees and government requirements can change.

This information is general in nature and does not take into account your individual circumstances. The Broker Society does not guarantee loan approval, a particular rate or any specific savings. We do not claim that we can save clients thousands of dollars. Outcomes depend on individual circumstances and the lending options available at the time.

Please consider your circumstances and seek appropriate professional advice before making any financial decision.