A house and land package home loan finances the purchase of vacant land and the construction of a new home as a coordinated transaction.
The finance structure differs from purchasing an established property because the land settles first, followed by progressive payments during the build phase. Your lender releases funds in stages based on construction milestones verified by an independent valuer. Most borrowers use a construction loan product that converts to a standard home loan once the build is complete.
How Construction Finance Works for House and Land Packages
You take out two separate but linked contracts when you purchase a house and land package. The first contract is for the land. The second contract is with the builder for the home.
Your lender assesses the combined value of land and completed dwelling when calculating your loan amount and deposit requirement. Consider a buyer purchasing a package in Ringwood East, close to the Mullum Mullum Creek Trail. The land component settles within 60 to 90 days of contract signing. At that point, the buyer begins paying interest on the land portion of the loan. The construction loan for the building component activates once the slab is poured. The lender releases funds at predetermined stages such as base stage, frame stage, lockup, fixing, and practical completion. Interest during construction is typically charged only on funds already drawn down, not the full approved amount.
Once the builder issues a Certificate of Occupancy and the council provides final approval, the construction loan converts to a standard home loan. At that point, the borrower transitions from interest-only payments on progressive drawdowns to principal and interest repayments on the full loan amount.
Deposit Requirements and Loan to Value Ratio
Most lenders require a minimum deposit of 10% of the combined land and build contract value for house and land packages. A 20% deposit avoids LMI and provides access to better interest rate pricing.
The loan to value ratio is calculated on the lower of the purchase price or the lender's valuation of the completed property. If you are purchasing land for $350,000 and the build contract is $450,000, your total package price is $800,000. With a 10% deposit of $80,000, your LVR is 90%. You would be required to pay LMI unless you qualify for an exemption under a first home buyer scheme or profession-based waiver. With a 20% deposit of $160,000, your LVR is 80% and LMI does not apply.
Ringwood falls within the Victorian property price cap of $950,000 for the Australian Government 5% Deposit Scheme, which means eligible first home buyers purchasing a house and land package in the area may be able to proceed with a deposit as low as 5% without paying LMI, provided the total package value does not exceed that threshold.
Interest Costs During the Construction Period
You pay interest on the land component from the date of land settlement. You pay interest on the construction component progressively as each stage is drawn down.
This creates a period of several months where you are servicing interest on a partially drawn loan while also potentially paying rent elsewhere. In a scenario where the land settles in January and construction completes in October, the buyer pays interest on the land loan for ten months and staged interest on the building loan as each payment is released. Many lenders offer interest-only repayments during construction to reduce cash flow pressure, switching to principal and interest repayments once the loan converts at practical completion.
Some lenders allow you to capitalise interest during construction, meaning the interest is added to the loan balance rather than paid monthly. This reduces immediate repayment obligations but increases the final loan balance and the total interest paid over the life of the loan.
Fixed Rate, Variable Rate, or Split Rate Options
You can choose between a variable rate, fixed rate, or split rate structure once your construction loan converts to a standard home loan.
A variable rate moves in line with changes in the lender's standard rate, which generally follows movements in the Reserve Bank cash rate. A fixed rate locks in your interest rate for a set period, typically one to five years. A split rate divides your loan into a fixed portion and a variable portion, allowing you to secure part of your rate while retaining flexibility on the remainder.
During the construction period, most lenders apply a variable rate to progressive drawdowns. Once construction is complete, you can elect to fix all or part of the balance. If you are purchasing a house and land package as an investment property, a split rate structure may provide flexibility to make extra repayments on the variable portion while maintaining rate certainty on the fixed portion. Owner-occupied borrowers often choose a fixed rate if they prefer repayment stability, particularly if they expect rates to rise during the fixed period.
Offset Accounts and Additional Features
An offset account linked to your home loan can reduce the interest you pay by offsetting your savings balance against your loan balance.
If your loan balance is $720,000 and you hold $30,000 in a linked offset account, you pay interest on $690,000. Offset accounts are typically available on variable rate loans and the variable portion of split loans, but not on fixed rate loans. Some lenders offer partial offset or savings accounts with reduced offset percentages on fixed loans, though these are less common.
Other features to consider include redraw facilities, portable loans that can be transferred to another property without refinancing, and the ability to make extra repayments without penalty. These features vary by lender and loan product. In our experience, buyers financing house and land packages in Ringwood who plan to upgrade or relocate within five to ten years often prioritise loan portability and offset functionality over the lowest advertised rate.
Government Schemes and Stamp Duty Concessions
Victorian first home buyers may be eligible for a $10,000 first home owner grant on new homes valued up to $750,000. A full stamp duty exemption applies on properties valued up to $600,000, with a sliding scale concession applying on properties valued between $600,001 and $750,000.
These concessions apply to house and land packages because the final dwelling is classified as a new home. The stamp duty exemption or concession applies to the land component at settlement, provided the buyer meets residency and occupancy requirements. You cannot combine the Victorian first home owner grant with the federal Help to Buy scheme, but you can combine it with the Australian Government 5% Deposit Scheme.
If you are purchasing in Ringwood as a first home buyer and your combined land and build value is $780,000, you would not qualify for the grant because the package exceeds the $750,000 cap, but you may still be eligible for a partial stamp duty concession depending on the land value at settlement.
Pre-Approval and Application Process
You should obtain home loan pre-approval before signing a contract for a house and land package.
Pre-approval confirms your borrowing capacity and gives you certainty that finance will be available when the land settles. The lender assesses your income, expenses, existing debts, and credit history, then issues conditional approval subject to valuation and final contract review. Most pre-approvals remain valid for 90 days, though some lenders extend this to 120 days for construction loans where settlement is delayed.
The lender orders a valuation once you provide the signed land contract and building contract. The valuer assesses the land value and the estimated value of the completed dwelling. If the valuation comes in below the contract price, the lender reduces the approved loan amount and you need to provide additional deposit funds to proceed. In a tightening credit environment, lenders apply the serviceability buffer and DTI limits as outlined in APRA prudential standards, which means your borrowing capacity may be lower than you expect based on your income alone.
Call one of our team or book an appointment at a time that works for you to discuss your house and land package finance options and confirm your eligibility for applicable grants and duty concessions.
Frequently Asked Questions
What deposit do I need for a house and land package in Ringwood?
Most lenders require a minimum deposit of 10% of the combined land and build contract value. A 20% deposit avoids LMI and may provide access to better interest rate pricing. Eligible first home buyers may be able to use the Australian Government 5% Deposit Scheme if the total package value is under $950,000.
Do I pay interest during construction on a house and land package loan?
Yes, you pay interest on the land component from the date of land settlement. You also pay interest on the construction component progressively as each stage is drawn down. Many lenders offer interest-only repayments during construction, switching to principal and interest once the build is complete.
Can I use a fixed rate loan for a house and land package?
During construction, most lenders apply a variable rate to progressive drawdowns. Once construction is complete and the loan converts to a standard home loan, you can choose a variable rate, fixed rate, or split rate structure depending on your preferences and circumstances.
Am I eligible for the Victorian first home owner grant on a house and land package?
You may be eligible for the $10,000 Victorian first home owner grant if the completed dwelling is valued up to $750,000 and you meet residency and occupancy requirements. The grant applies to new homes, which includes house and land packages.
How does home loan pre-approval work for a house and land package?
Pre-approval confirms your borrowing capacity before you sign the land and building contracts. The lender assesses your income, expenses, and credit history, then issues conditional approval subject to valuation and final contract review. Most pre-approvals remain valid for 90 to 120 days.
