Simple hacks to fund a house and land package

House and land packages look straightforward until you apply for finance.

You're not buying a completed property. You're committing to land settlement first, then staged payments as the build progresses. Most lenders treat this differently to a standard purchase, and if your broker doesn't structure the application correctly from the start, you'll hit delays when the builder's ready to start work.

The main issue is timing. You need approval that covers both the land purchase and the construction phase, with drawdown staged to match the builder's payment schedule. Get this wrong and you'll either pay interest on funds you haven't used yet, or scramble to get additional approval mid-build when the next progress payment is due.

How lenders assess house and land packages differently

Lenders want to see a fixed-price building contract before they'll commit to the full loan amount. That contract needs to include the build timeline, progress payment stages, and a finish date. Without it, they're approving based on land value alone, which doesn't give them enough security for the total amount you're borrowing.

Most lenders will also require a valuation that accounts for the 'as if complete' value, not just the land. The valuer looks at the plans, the location, and comparable sales to estimate what the finished property will be worth. If that valuation comes in lower than the combined land and build cost, you'll need to make up the difference with a larger deposit or risk the loan being reduced.

For builders applying on a self-employed basis, this is where income verification matters. Lenders want to see at least two years of financials, and they'll look closely at your ABN tenure and whether your income is consistent enough to service the loan once construction is finished. If you've recently started trading under a new entity, expect pushback unless you can show prior industry experience.

The two-stage approval process that keeps the build on schedule

Most house and land packages are financed using a two-stage structure: land loan first, then construction loan. The land loan settles when you take ownership of the block. The construction loan sits approved but undrawn until the builder invoices for each stage.

Consider a builder purchasing a house and land package in a new estate. The land component settles in month one. The builder signs a fixed-price contract for the house, with payments due at slab, frame, lock-up, fixing, and completion. The lender approves the full amount upfront but only releases funds as each stage is certified by an independent inspector. This means you're only paying interest on the portion of the loan that's been drawn, not the full amount.

The catch is that some lenders charge higher rates during construction, then switch you to a standard variable or fixed rate once the build is complete. Others offer the same rate throughout but require you to refinance if you want to access features like an offset account before practical completion. You need to know which structure you're signing up for, because it affects how much you'll pay during the build phase.

What actually counts as a progress payment

Progress payments are tied to physical stages of construction, not timeframes. The builder invoices after each stage is completed, a certifier inspects the work, and the lender releases the next tranche of funds. The standard stages are base, frame, lock-up, fixing, and practical completion, but the exact breakdown depends on your building contract.

Lenders won't release funds based on a builder's invoice alone. They require certification from a qualified inspector confirming that the stage is complete and the work meets Australian standards. If there's a dispute between you and the builder, or if the certifier identifies defects, the lender will hold the payment until the issue is resolved. This protects you, but it also means you need to stay on top of inspections to avoid delays.

Some builders structure their contracts with more than five stages, which can create problems if your lender only allows five drawdowns. You'll need to negotiate either with the builder to consolidate stages, or with the lender to allow additional drawdowns. Sorting this out before you sign the building contract is a lot easier than trying to renegotiate mid-build.

Fixed versus variable during construction

You can't lock in a fixed rate on a construction loan until the funds are fully drawn. Lenders won't fix a rate on money that hasn't been lent yet, because they don't know when you'll actually need it. This means you'll be on a variable rate during the build, regardless of whether you plan to fix once construction is finished.

If variable rates rise during the build, your repayments will increase on the portion that's already been drawn. For a build that takes eight to twelve months, that's not usually a major issue, but if your builder runs late or you hit delays with council approvals, you could be exposed to rate movements for longer than expected.

Once the build reaches practical completion, you can switch to a fixed rate, a variable rate, or split the loan across both. Some lenders will automatically move you to their standard product unless you request something different. Others require you to reapply or refinance to access different loan features. Check this at the approval stage, not when the build finishes.

Deposit requirements and where LMI applies

Most lenders want a 10% deposit for a house and land package, calculated on the total purchase price including both land and build costs. If you're borrowing more than 80% of the total value, you'll pay Lenders Mortgage Insurance. Some lenders will let you include the LMI premium in the loan amount, which means you're borrowing more than the actual cost of the package.

For builders, there are LMI waivers available through certain lenders that recognise trade qualifications as lower risk. These waivers can let you borrow up to 90% without paying LMI, but they're not available across all house and land packages. The property needs to meet the lender's criteria, and you'll need to show at least two years of trading history in most cases.

If you're using the Home Guarantee Scheme to reduce your deposit, the property needs to be valued under the scheme's price caps, and the land must be titled before you can settle. Some house and land packages in new estates don't have titles issued until months after you sign the contract, which can push your settlement date out and delay your access to the scheme.

When the valuation doesn't match the contract price

A valuation shortfall happens when the 'as if complete' value comes in lower than what you've agreed to pay for the land and build combined. This is more common in new estates where there aren't many comparable sales yet, or where the developer has priced the land higher than the surrounding market.

If the valuation is short by 5% or less, some lenders will still approve the loan but at a higher loan-to-value ratio, which means you'll either need a larger deposit or you'll pay LMI. If the shortfall is more than 5%, you'll need to make up the difference in cash or renegotiate the contract price with the developer.

Valuation issues usually surface after you've paid a deposit and signed the contract, which puts you in a tough spot. You can walk away and lose your deposit, come up with more cash, or try to negotiate with the vendor. Getting pre-approval based on the contract price before you commit can help, but it doesn't guarantee the valuation will come in where you need it.

Offset accounts and features during the build

Most construction loans don't include an offset account or redraw facility until the build is complete and the loan converts to a standard home loan product. During construction, you're paying interest on whatever's been drawn, and any extra repayments usually go into a holding account rather than reducing the loan balance.

If you're earning income during the build and want to reduce interest costs, check whether your lender allows early repayments that actually offset the balance. Some do, most don't. If the construction phase is going to take twelve months and you're planning to park savings somewhere, you might be better off keeping them in a high-interest savings account until the loan converts, rather than making extra repayments that sit in a holding account earning nothing.

Once the build is finished and you switch to a standard loan structure, you can add an offset account, split the loan between fixed and variable, or restructure however you need. Just don't assume those features are available during construction unless the lender confirms it in writing.

If you're a builder looking at a house and land package and you're not certain how the finance structure works, call one of our team or book an appointment at a time that works for you. We'll walk through the approval process, the drawdown schedule, and how to structure the loan so it actually suits the way you're building.

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