Common Mistakes When Buying House & Land Packages

Buying a house and land package means arranging finance that works differently to a standard home loan.

You're purchasing land and contracting a builder at the same time, which means your lender will release funds in stages as construction progresses rather than in a single settlement. That process is called a construction to permanent loan, and it requires more documentation upfront and closer coordination between your solicitor, builder, and broker throughout the build.

Why Construction Finance Differs From a Standard Home Loan

A construction to permanent loan only releases funds according to the progress payment schedule in your building contract. Lenders only charge interest on the amount drawn down at each stage, not the full loan amount. Between drawdowns, you typically make interest-only repayment options, which keeps your outgoings lower during the build. Once construction is complete and the final inspection clears, the loan converts to principal and interest repayments on the full amount.

The lender will also require council approval and a fixed price building contract before they'll issue formal approval. If your builder works on a cost plus contract, most lenders won't proceed because the final price isn't locked in. That's a risk they're not prepared to take, and it's one of the more common reasons applications stall.

Council Plans and What Lenders Check Before Approval

Lenders want to see that your development application has been approved by the local council and that all conditions have been satisfied. In Middle Park, where heritage overlays apply across much of the suburb, council scrutiny is often more detailed than in newer growth corridors. If your design includes any variation to setbacks, building height, or materials, expect the council process to take longer. Lenders won't release funds until those approvals are finalised and stamped.

Your builder will need to be a registered builder with current insurance, and the lender will verify that before the first drawdown. If the builder is new to the lender's panel or hasn't built in the area before, they may request additional documentation or a site inspection before approving the first stage.

How the Progressive Drawdown Schedule Works in Practice

Most house and land packages use a five-stage progress payment schedule. The first drawdown covers the land purchase and initial works, usually around 10% to 15% of the total contract value. Subsequent payments occur at slab down, frame stage, lockup, fixing stage, and practical completion. The builder submits a progress claim after each stage, and the lender arranges a progress inspection to confirm the work has been completed before releasing funds.

Consider a buyer purchasing a house and land package where the land is valued separately and the building contract is $450,000. The first payment settles the land, the second releases funds once the slab is laid, and so on through to completion. Between each stage, the buyer is only paying interest on what's been drawn down. If $200,000 has been released by lockup, interest is calculated on that amount, not the full loan. That difference can be several hundred dollars a month during construction.

Lenders charge a Progressive Drawing Fee each time they arrange an inspection and release funds. That fee is typically between $300 and $600 per drawdown, depending on the lender and whether the property is in a metro or regional area. Over five stages, those fees add up, and they're usually deducted from the drawdown rather than paid upfront. Factor them into your budget alongside stamp duty, conveyancing, and building insurance.

What Happens if Construction Delays Push Your Timeline

Most lenders require you to commence building within a set period from the Disclosure Date, usually six to twelve months. If the builder hasn't started by then, your approval may lapse and you'll need to reapply. That can be a problem if interest rates have moved or your financial circumstances have changed since the original application. Keeping in contact with your broker during any delays means you can manage extensions or resubmit documents before the approval expires.

In Middle Park, where most blocks are smaller and access can be constrained by narrow streets and heritage streetscapes, builders sometimes face delays waiting for permits to close roads or store materials. Those delays don't usually affect your finance approval directly, but they can extend the timeline and push out your first drawdown. If you're renting while you build, that can add months to your rental costs.

How Lenders Assess Your Borrowing Capacity During Construction

Lenders assess your ability to service the full loan amount from the start, even though you'll only be making interest payments during construction. That means your income needs to support the principal and interest repayment you'll be making once the build is finished. If your income is borderline, some lenders will decline the application even though your interest-only payments during construction would be manageable.

Your broker can structure the application to show rental income if you're planning to lease the property once it's complete, but that income is usually shaded by 20% to account for vacancy and maintenance. If you're relying on that income to service the loan, the lender will want to see a clear rental appraisal before they proceed. For construction loans, having a buffer in your income or savings makes a significant difference to how lenders view the application.

Why Your Builder's Contract Terms Matter More Than You Think

Fixed price contracts are standard for house and land packages, but not all contracts are written the same way. Some builders include clauses that allow price rises if the build extends beyond a certain date or if material costs increase by more than a set percentage. Lenders don't like those clauses because they introduce uncertainty into the loan amount. If your contract includes a variation clause that isn't capped, your broker may need to negotiate with the builder or find a lender who will accept it.

Progress payments should align with the stages outlined in your contract. If the builder asks for payments that don't match the lender's drawdown schedule, you'll need to either renegotiate the contract or cover the gap with your own funds. That's not common, but it does happen when buyers sign a contract without checking how the payment terms fit with their finance structure.

What Middle Park Buyers Should Know About Land Value and LVR

When you're buying a house and land package, the lender values the land separately from the construction. If you're borrowing more than 80% of the total package price, you'll pay lenders mortgage insurance, and that premium is calculated on the full amount. In Middle Park, where land values are high relative to construction costs, your loan-to-value ratio can look more favourable than in outer suburbs where land is cheaper. That can mean a lower LMI premium or, in some cases, no LMI at all if the land component pushes your equity above 20%.

If you're considering a land and build loan and you're also weighing up established properties in the same area, it's worth comparing how the LVR calculation affects your upfront costs. For buyers in Middle Park who are drawn to the suburb's proximity to the beach, parks, and the Sandridge Trail, a house and land package on one of the limited available blocks can offer more control over design and finish than an older home that needs work. Your broker can run both scenarios and show you the deposit and LMI differences side by side, which makes the decision more concrete.

When to Lock in Your Construction Loan Interest Rate

Most lenders offer the option to fix your rate once construction starts, but you won't be able to lock it in during the land settlement. That means you'll be on a variable rate during the build, and if rates rise during that period, your repayments will increase once the loan converts to principal and interest. Some lenders allow you to fix the rate at a specific construction stage, such as lockup, which gives you more certainty as you approach completion.

If you're planning to hold the property long-term, locking in a rate once the build is underway can protect you from rate rises during the final stages. If you're building to sell or you expect to refinance within a couple of years, staying variable may give you more flexibility. Your broker can talk through the timing and the trade-offs based on where rates are sitting when you're ready to commit.

Call one of our team or book an appointment at a time that works for you. We'll walk through your contract, your builder's schedule, and the lenders who are most responsive to house and land packages in Middle Park, so you know exactly what's required before you sign anything.

Frequently Asked Questions