Home Loan for Land and Construction: A Guide for First-Time Builders

Building your own home isn’t just exciting, it’s personal. But if you’re buying land and planning a custom build, the loan you need isn’t the same as the one you'd get for an existing house.

This is where a home loan for land and construction comes in. And if you’re a first home buyer trying to figure it all out, you’re not alone. Many Australians are jumping into the land-and-build process as a more affordable way to get into the market, especially with newer suburbs expanding in Melbourne and Sydney.

Here’s how to navigate your options, and what the banks won’t always tell you upfront.

What Exactly Is a Land and Construction Loan?

Let’s break it down. You’re financing two things:

1. The land (which might be ready to settle now)

   
   
   
   

2. The home you’re about to build on that land

   
   
   
   

Your lender gives you the land funds first. Then, as your build progresses, they pay out the construction loan in stages. It’s called a “progressive drawdown”, and you’ll hear that term a lot.

Instead of receiving the full loan at once, funds are released as each stage of construction is completed. These stages usually include:

●     Base/slab

●     Frame

●     Lock-up

●     Fixing

●     Completion

Think of it like milestone payments to your builder, while you pay interest only on what’s been released. Your repayments start small and grow gradually.

Why Is This So Different From a Standard Loan?

Well, a traditional home loan assumes there’s a house already standing. But when you’re building, the bank is funding something that doesn’t exist yet. That adds risk.

So lenders are more cautious. They’ll want to know:

●     Who’s building it

●     How much it’ll cost

●     Whether you’ve locked in a price

●     And whether the final valuation will hold up

This is where things can get tricky if your build quote changes mid-way or if you haven’t finalized plans. Timing is everything.

First Home Buyer? Good News.

You might be eligible for some powerful benefits, especially if you're building your first home. Depending on your state and income, you could access:

●     The First Home Owner Grant

●     Stamp duty discounts or exemptions

●     Shared equity or low-deposit government loan schemes

●     Exclusive first home buyer loan offers from banks

In places like Victoria, for example, a new home valued under $750,000 could mean paying no stamp duty at all. And many lenders now have special interest rates or cashback deals just for first-time buyers.

The catch? You’ll need to apply correctly. Some lenders don’t offer these incentives unless your paperwork meets specific criteria.

What Deposit Do You Really Need?

Short answer: it depends.

●     With no support: aim for 10%–20%

●     With grants or shared equity: 5% may be enough

●     With a guarantor: in some cases, even 0%

But remember, you’re financing two components, the land, and the build. Your lender will look at the full loan-to-value ratio (LVR), not just the land part.

And yes, they’ll usually want a fixed-price building contract before giving the green light.

How Do Repayments Work?

During the build:

●     You’ll usually pay interest only on the drawn-down amount

●     Your repayments grow as more is released

●     You won’t pay on the full loan until the house is finished

Once the home is complete:

●     The loan usually switches to principal and interest

●     You can request a rate lock or even refinance if better options are available

●     Features like offset accounts may activate at this stage

Heads up: not all lenders let you access full features during the build. So it’s worth checking before you lock anything in.

What Paperwork Do You Need?

It varies slightly by lender, but most will ask for:

●     Your land contract

●     A signed building contract (ideally fixed price)

●     Council-approved plans and specs

●     Proof of income (payslips or BAS if you’re self-employed)

●     Deposit statements or savings history

●     Any government grant approvals you’re applying for

If you’re going the first home buyer route, you’ll also want your grant paperwork ready early, some lenders factor that into your total deposit.

Should You Choose a House-and-Land Package?

It can make life easier. These are often marketed to first home buyers because they:

●     Combine both land and build costs

●     Come with turnkey inclusions

●     May unlock developer discounts

●     Usually align with grant eligibility thresholds

But look closer. Make sure you’re comparing what's actually included in the advertised price. Sometimes essentials like landscaping, fencing, or flooring are extras.

And check whether the land is titled. Delays in land registration can push your build (and your interest repayments) back by months.

What If You're Self-Employed?

You’re not shut out, just be ready to provide more proof of income.

●     BAS for the last 12 months

●     Recent tax returns

●     A clean credit history

●     Possibly a higher deposit (10% or more)

Some smaller or specialist lenders may be more flexible, especially if you’ve got consistent turnover or can show steady contractor income. But again, it’s all about packaging your application clearly.

Watch Out for These Hidden Costs

Even if you lock in a decent rate, here’s what can sneak up on you:

●     Fees for each progress drawdown

●     Lender valuation and inspection fees

●     Admin charges for construction monitoring

●     Revert rates, these often jump higher once the build is done

●     Loan restructure or refinance fees if you switch

So when comparing offers, don’t just look at the interest rate. Look at the entire picture.

Final Thoughts: Build With Eyes Wide Open

Getting a home loan for land and construction gives you a fresh start, literally. You’re not just buying someone else’s vision; you’re creating your own.

But with staged payments, extra paperwork, and a moving target for costs, you need the right loan, not just any loan. Especially as a first home buyer.

With expert guidance and the right structure, you can build confidently, without the setbacks many buyers hit mid-way through the process.

Planning to build your first home? Speak with Loan Easy about home loans that support your land purchase, build timeline, and future repayments.