Construction Loans for House and Land Packages

Buying a house and land package means you're securing vacant land and a building contract at the same time, usually from the same developer.

The funding works differently to a standard home purchase because the house doesn't exist when you apply for the loan. You'll need construction finance that releases funds progressively as your registered builder completes each stage, rather than one lump sum at settlement. Most lenders structure this as a construction to permanent loan, which converts to a standard mortgage once building finishes. The amount you can borrow depends on the combined contract price of the land and the fixed price building contract, along with your deposit and borrowing capacity.

How the Application Timing Works When You Purchase Land and Build

You'll typically settle on the land first, before construction begins. When you apply for construction finance, the lender assesses both the land value and the building contract value together. They'll want to see a fixed price building contract with a registered builder, along with council approval and a clear progress payment schedule.

The deposit required usually sits between 10% and 20% of the total project value. In Inverloch, where many house and land packages are being released around the Inverloch Junction and Anderson developments, land values start around $300,000 to $400,000, with building contracts typically adding another $400,000 to $600,000 depending on design and specifications. On a $700,000 combined package, a 10% deposit means finding $70,000 before settlement.

You'll need to commence building within a set period from the disclosure date, often six to twelve months. If you exceed that timeframe, some lenders require you to reapply or provide updated valuations.

What Happens During the Progressive Drawdown Phase

Once you settle on the land, the builder starts work and submits claims at each stage. The lender releases funds according to the progress payment schedule outlined in your building contract. A typical schedule includes base stage, frame stage, lock-up stage, fixing stage, and completion. Each time the builder reaches a milestone, they submit documentation to the lender.

The lender arranges a progress inspection to verify the work matches the claim. Once satisfied, they release that portion of the loan amount directly to the builder. You only pay interest on the amount drawn down so far, not the full approved loan. During construction, most borrowers select interest-only repayment options to manage cash flow while they're still paying rent or living elsewhere.

Consider a buyer who purchased a $350,000 block in the Inverloch Junction estate with a $480,000 build. They paid their 10% deposit ($83,000) and settled on the land. At base stage, the builder claimed $96,000. The lender released that amount after inspection, and the buyer paid interest only on $96,000 plus the land portion. By frame stage, the total drawn was $288,000. Their monthly interest cost sat around $2,100 at current variable rates, while their previous rent was $2,000. The gap remained manageable because they weren't servicing the full loan yet.

Understanding the Progressive Drawing Fee and Other Construction Costs

Lenders charge a progressive drawing fee each time they release funds and arrange an inspection. This fee typically ranges from $250 to $400 per drawdown. With five or six drawdowns across a build, you're looking at $1,500 to $2,400 in total fees. Some lenders cap the number of inspections or charge a flat fee instead.

These costs sit separate from your building contract and loan amount. You'll also need to budget for council inspections, connection fees for utilities like water and electricity, and any additional payments required outside the standard contract. When working with construction loans, we regularly see buyers underestimate these ancillary costs by $5,000 to $10,000, which can create pressure if not factored into your deposit planning.

Your builder may use a cost plus contract rather than a fixed price, particularly for custom designs. Cost plus means you pay the actual construction costs plus a builder's margin. Most lenders prefer fixed price building contracts because they provide certainty around the final loan amount. If you're pursuing a custom design, expect more detailed scrutiny during the application and potentially a larger deposit requirement.

Converting to Standard Repayments Once Building Completes

When the builder reaches practical completion and you receive final council approval, the lender conducts a final valuation. The construction loan converts to a standard home loan, and you switch from interest-only payments to principal and interest repayments across the full loan amount.

This transition can catch buyers who haven't planned for the repayment increase. During construction, you might have been paying interest only on $400,000. After conversion, you're servicing $830,000 over 30 years. At current rates, that shifts your monthly commitment from around $2,900 to approximately $5,400. The difference of $2,500 per month needs to be within your confirmed borrowing capacity from the start, which is why lenders assess your application based on the full amount, even though you won't draw it all immediately.

Inverloch attracts many sea-changers and retirees alongside families seeking coastal lifestyle. If your income includes rental properties or investment returns rather than standard PAYG employment, your mortgage broker in Inverloch will need to structure your application to demonstrate consistent serviceability across both the construction and permanent phases.

Selecting Suitable Land Within Your Package

Not all blocks within a development suit construction lending equally. Lenders assess the land itself for any encumbrances, easements, or planning overlays that might affect value or building timeframes. If your block sits within a bushfire zone or requires additional engineering due to coastal conditions, expect the lender to request specialist reports before approving the full amount.

Inverloch's coastal position means some estates include environmental overlays or drainage requirements. Blocks closer to the foreshore or wetlands may face building restrictions or higher insurance costs. Your solicitor will identify these during contract review, but your lender will factor them into their valuation and risk assessment. A block that seems identical in size and price to another may receive a lower valuation if it carries additional planning constraints.

The land component needs to settle before building starts, which means you'll be holding that debt while waiting for council plans and permits to finalise. If delays push out your construction start date beyond the lender's timeframe, you may face reapplication or bridging arrangements to maintain approval.

Why the Building Contract Structure Affects Your Approval

Lenders want to see a fixed price building contract with a registered builder who holds adequate insurance. They'll review the contract for clauses around variations, timelines, and payment milestones. If the contract allows the builder to claim more than the standard percentage at each stage, or if the progress payment schedule doesn't align with typical construction phases, the lender may push back or require amendments.

The contract should clearly separate the land cost from the building cost, outline what's included in the build (including site costs, driveways, and landscaping), and specify who pays for items like soil tests, engineering, and authority fees. Ambiguity around these costs can delay approval or reduce your borrowing capacity if the lender adds contingency buffers.

When reviewing applications for house and land packages, we regularly see contracts where the site preparation costs aren't clearly itemised, or where allowances for selections like kitchen and bathroom finishes sit well below realistic figures. If you exceed those allowances during the build, you'll need to cover the difference from your own funds unless you've maintained a buffer in your loan approval.

Call one of our team or book an appointment at a time that works for you. We'll review your building contract, confirm your borrowing capacity across both construction and permanent phases, and connect you with lenders who actively support house and land packages in the Inverloch area. Your finance structure needs to match your building timeline, and getting that right from the start removes uncertainty through every stage of the project.

Frequently Asked Questions