Building Loan: How Does it Work & What You’ll Need?

Personal Loans

A building loan offers the finances you need to start or complete your home construction project.

Whether you’re renovating or building off-plan, these loans are designed for such projects. They’re similar to mortgages or bonds but slightly different.

Let me show you how the building loans work.

How Does Building Loan Work

So you’ve applied for the loan and wondering how the money is going to be made available to you.

The loan is solely designed to finance your building or renovation project and not for personal use.

So the lender/bank offering a building loan will pay the money in different stages of your home construction project. The money will be paid directly to the contractor and building material retailer.

This means whoever contractor you’re going to hire for the job must be registered with the NHRBC (National Home Builders Registration Council).

The contractor may be required to use their own funds to build your home and once completed, the lender or bank will then pay up for the progress.

How to Qualify for the Building Loan

First, your credit score rating is very important in the process of applying for a construction loan.

A good credit score would give you a higher chance of qualifying for the loan to finish your construction project.

Next, you need to find and purchase land. If you have the land already, then the title deed or proof of ownership will be required by the bank.

A house plan, to estimate the cost of your projects.

You’ll need to request quotations for building materials and labour from the contractor for submission with your application for the building loan.

And unfortunately, most construction loans are offered at a variable interest that may periodically change depending on the rate index.

Last and most importantly, you must 18 years and older to apply for the loan. Only responsible borrowers will be granted the loans, based on their credit history.

Banks that offer Construction Loans

Below is a list of popular banks and lenders offering building loans in South Africa:

Do I Need to Provide a Deposit?


Lenders that offer a building loan will require an upfront 10% deposit of the total amount borrowed.

The deposit varies between lenders and is dependent on your credit score rating. The amount will cover the difference between the amount banks will offer and the total cost of your project.

All the loan details will be stipulated in the final quote from the bank for your approval.