December 8, 2025

New Builds: Construction Loan vs Turnkey Loan?

Understanding Your New Build Loan Options

Buying a brand-new home is exciting. However, as a first-home buyer in New Zealand, you’ll likely face a big question of construction loan or turnkey contract? Both paths lead to a new build home, but the payment structure for the build, as well as risks, benefits and responsibilities, are completely different. Let’s break down how each option works, their pros and cons, and which might suit you best as a first-time buyer.

Capital Advice has helped many Kiwis finance new builds. Here’s what you need to know. Remember, you can always talk to our advisers for guidance.

What Is a Construction Loan?

A construction loan is a type of mortgage designed for building a house from scratch. Instead of a single lump sum payout, the bank releases funds in stages called drawdowns as the build progresses and these are used to cover construction costs. For example, you might get part of the loan to cover the foundations costs, then again once roof is on, and so on until completion. During construction, you pay interest only on the amount drawn down so far, instead of the full loan amount.

This staged approach means a bit more involvement for you and the lender:

• Progress checks: The lenders often want updates at each stage. Sometimes a few photos and your written confirmation is enough, sometimes it requires valuation reports before the next payment is released.
  
• Interest during build: Because the loan grows in chunks, your interest costs start small and increase over time. However, you could be paying rent and interest on the loan simultaneously while your new home is being built.
  
• Deposit and buffer: Lenders often require a slightly higher deposit for a construction loan. They know that build costs can run over budget, so they like to see that you have extra funds available just in case.

On the plus side, a construction loan gives you more control over the process. You typically own the land from the settlement day, and you can engage with your builder on progress. If you’re building a custom home or making lots of decisions throughout the build, this loan supports that step-by-step approach. Just be ready for more paperwork and project management along the way.

What Is a Turnkey Contract?

A turnkey purchase offers a more hands-off approach. “Turnkey” means the home will be finished and ready to turn the key in the door on move-in day. With a turnkey build, you usually:

• Pay a small deposit upfront. 
• Sign a contract for a fixed price package with a developer or builder. 
• Pay nothing more until completion. The remaining 90-95% of the price is not due until the house is finished and ready for you.

In essence, the builder carries the financial burden during construction, not you. You don’t need a special construction mortgage, only a standard home loan that settles on completion, just like buying an existing house. This makes life easier if you’re renting while waiting for your home to be built, since you won’t have to juggle rent and mortgage payments at the same time.

Turnkey packages are popular with first-home buyers because:

• Simplicity: The process is straightforward. Once you’ve paid the deposit and signed the contract, the builder takes care of the rest. You can watch your home being built without needing to approve drawdowns or report to the bank on progress. 
• Fixed Price: In most cases, turnkey contracts are fixed-price, even if material or labor costs rise during the build. 
• Lower upfront cost: Only needing a 10% deposit means less strain on your savings. Some first-home buyers even use KiwiSaver withdrawals or First Home grants to cover that deposit.

In short, a turnkey loan feels a lot like a normal house purchase from the buyer’s perspective. You wait for your home to be completed, then settle the purchase with your bank loan and move in.

Key Differences Between Construction & Turnkey?

Now that we’ve defined each option, let’s compare construction vs turnkey loan in key areas:

• Payment Timing: With a construction loan, you “pay as you go.” Your loan draws down in installments and you pay interest during the build. With a turnkey, you pay one initial deposit and one big sum at the end, so no loan repayments until you’ve got the keys. 
• Risk & Cost Overruns: Building a house can come with surprises such as bad weather, material shortages, or design changes that can increase costs. If you’re on a construction loan and costs blow out, you may need to stump up more money or increase your loan. In recent years we have seen many builders going under in that case you would have to find a new builder willing to continue construction of your home. With a turnkey contract, the developer carries that risk. The price is usually locked in, protecting you if the build runs over budget. Always have a lawyer check your contract to confirm it’s truly fixed-price and see what’s included. Sometimes things like fences or landscaping aren’t included in a “turnkey” deal, meaning you’d pay for those separately. 
• Control and Involvement: A construction loan gives you more involvement in the project. You might be visiting the site regularly and approving stage payments. Turnkey is more “set and forget”, which is great if you’re busy or not comfortable managing a build, but less flexible if you want to make changes mid-way. Some buyers find turnkey packages a bit limiting in terms of customisation. 
• Bank Approval Process: Getting a construction loan is more complex. Lenders will ask for your signed build contract, building plans, insurance cover for the build, and progress valuations. Not all lenders offer construction loans readily to every borrower, since there’s higher risk until the house is completed. Turnkey loans are simpler, as the bank treats it much like an existing home purchase. You still need a standard loan approval, but you won’t need to provide progress reports to the bank once approved. 
• Deposit Requirements: Here’s a big one for first-home buyers. For a construction loan, banks often require more deposit, usually 10% is a minimum deposit amount but it often goes up to 20%. Many banks will approve turnkey contracts with just a 10% deposit and in some cases even 5% for strong applicants. In fact, New Zealand’s Reserve Bank exempts new construction loans from typical deposit restrictions, meaning it’s often possible to buy a new build with a lower deposit than an existing home. This is a huge advantage if you haven’t saved a 20% deposit. Plus, if you qualify for Kāinga Ora’s First Home Loan program, you might only need a 5% deposit minimum for a new build purchase.

Which Option is Right for You?

Every buyer’s situation is different. Here are some pointers to consider:

• Choose a Construction Loan if… you’re set on a custom build or a land-and-build package where you want control over each stage. If you have the financial buffer to handle extra costs and potentially cover rent and loan interest for a few months, this route lets you engage deeply in the building process. It can be rewarding to see your home take shape stage by stage. Also, if you already own land, a construction loan is the obvious choice to fund the build on your section.
• Choose a Turnkey Package if… you value simplicity and certainty. Turnkey is ideal if you’re juggling a rental or family while waiting for your home. It’s also great for buyers who have a smaller deposit. The fixed-price nature gives peace of mind that you won’t get a call from the builder asking for more money. Just make sure the contract includes everything you expect in a finished home. Turnkey homes are common in new subdivisions and often targeted at first-home buyers.

Ready to Talk About Your New Build?

Get in touch – we are happy to review your plans, crunch the numbers together with you, and help you make the best choice for your first home. Contact our team today and take the first step toward making your dream home a reality!