Avoid These 5 Mistakes When Financing a House and Land Package

A house and land package splits your purchase into two transactions: one for the land, one for the construction.

That changes how your finance is structured, when funds are released, and which loan features you can access at each stage. Buyers who treat a house and land purchase like a standard home loan often find themselves underfunded at settlement or paying for land they cannot use while they wait for construction to begin.

Mistake 1: Applying for Pre-Approval Without a Full Package Price

Pre-approval for a house and land package needs to cover the combined land and build cost, not just the land component. Lenders assess your borrowing capacity based on the total purchase price, but you need a signed build contract or a credible estimate from the builder to proceed. Without it, your pre-approval may only reflect the land value, leaving you short when the build contract is finalised.

Consider a buyer in Dulwich Hill who secures pre-approval based on the land price alone, then signs a build contract three months later that pushes the total cost beyond their approved loan amount. They either need to reapply or increase their deposit, both of which delay settlement. In our experience, buyers who lock in a fixed build price with the builder before applying for finance avoid this issue entirely.

Mistake 2: Choosing the Wrong Loan Structure for Staged Payments

A construction loan releases funds in stages as the build progresses, not as a lump sum at settlement. You purchase the land first, then draw down funds at each construction milestone: slab, frame, lockup, fixing, and completion. Interest is charged only on the amount drawn, not the full loan amount.

Some buyers apply for a standard home loan instead of a construction loan, assuming they can convert it later. That does not work. The land settles first, and if your loan is not structured to release progressive payments, your builder will not receive funds. Your lender needs to approve the build contract, engage a valuer to inspect each stage, and release funds accordingly. A standard loan structure cannot do that.

How Long Does Construction Finance Actually Take?

From application to land settlement, allow four to six weeks if your deposit, build contract, and financial documents are ready. The construction phase adds another six to twelve months depending on the builder's schedule and council approvals. Interest-only repayments during construction keep your repayments lower while the build is underway, switching to principal and interest once the property is complete.

Dulwich Hill sits within the Inner West Council area, where building approvals for complying developments can take eight to twelve weeks. Non-complying builds, or those requiring design variations, often take longer. Your lender will not release the first progress payment until the builder has council approval and proof of insurance in place, so factor that into your timeline.

Mistake 3: Not Accounting for Deposit Timing Across Two Settlements

You pay a deposit on the land at contract exchange, usually 10 per cent, then settle the land purchase within 30 to 90 days depending on the contract. The build deposit is typically paid when you sign the construction contract, often around the same time as land settlement. That means your total upfront cash requirement can reach 15 to 20 per cent of the combined package price before construction even begins.

A buyer purchasing a house and land package at the current median for Dulwich Hill needs to cover both the land deposit and the build deposit within a short window. If your savings are tied up in offset accounts, term deposits, or shares, make sure you can access them in time. Lenders assess your genuine savings as well, so funds need to have been held in your name for at least three months.

Mistake 4: Overlooking Offset Account Restrictions During Construction

Most lenders do not offer a full offset account on the land portion of a construction loan until the build is complete and the loan converts to a standard home loan. During construction, you are usually limited to a redraw facility or a partial offset, meaning any cash sitting in your account does not reduce your interest charges as efficiently as it would on an owner-occupied variable loan.

If you are holding a large cash buffer during the build, that restriction can cost you. A split loan structure, where you fix part of the loan and leave part variable with offset access once construction is complete, can work well for buyers who want rate certainty and offset flexibility. Just make sure the variable portion is large enough to make the offset worthwhile.

Mistake 5: Ignoring State Concessions That Only Apply to New Builds

House and land packages qualify as new builds, which opens access to grants and duty concessions that established homes do not. In NSW, first home buyers purchasing a house and land package can access a full stamp duty exemption on the land component if the combined land and build value is under $800,000, or a sliding concession up to $1,000,000. The First Home Owner Grant of $10,000 is also available, but only if the combined contract value is under $750,000 for the build, with the land value capped at $600,000 or a combined cap of $750,000 depending on contract structure.

These concessions reduce your upfront costs, but you need to apply through Revenue NSW before settlement. Buyers who miss the application window or assume their conveyancer will handle it without confirmation often lose access to the concession. Your lender cannot apply on your behalf, so make sure it is done early.

What Happens If the Build Price Changes?

Most build contracts include a provisional sum for items like landscaping, driveways, or site costs that are finalised once construction begins. If the final price exceeds the provisional amount, you will need to cover the difference. Your lender will not automatically increase your loan unless you apply for a variation, and that requires another serviceability assessment.

Some builders include a fixed-price contract with no variations, which removes that risk but may come at a higher upfront cost. The contract structure affects how much flexibility you have if the build price moves, so read the builder's terms before signing.

Call one of our team or book an appointment at a time that works for you. We will structure your finance to match the contract, confirm your deposit timing, and make sure your loan is approved before you sign anything.

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