For many people, the traditional Australian dream is to own a new home. However, the concept of planning and building a house from scratch can be overwhelming.
House and land packages offer an alternative for those who want to purchase a new home without all the hassle. But how do you finance a house and land package, and what are the advantages and disadvantages of this option? Let’s take a closer look.
What Is A House And Land Package?
A new home is built by a property developer who acquires land. After laying down the infrastructure (roads, utilities, water and sewage), they will either:
- Completely build a new home and sell it as a house and land deal (turnkey property).
- Offer customisable home designs so the buyer will choose the block of land and the features they want in their home.
Types Of House And Land Packages
There are two types of house and land packages:
- Turnkey package: A turnkey home means that once the building is complete, you can turn the key in the front door and start living there straight away, with no further work required.
- House and land package: You secure the land first and then build on the land later. After you’ve paid for the land, there might be additional payments during construction.
How Much Can I Borrow?
- Up to 95% of the value of the block of land, if you’re buying land first and building later.
- Up to 90% of the completed value of the property if you’re buying a turnkey property.
- 100% if you’re buying with a guarantor.
Discover if you qualify!
Call us on 1300 889 743 or complete our free assessment form today.
How Does The Loan Work?
There are two components of a house and land package loan.
The first component is the loan for the vacant land, which in itself is like a standard home loan. The amount you can borrow depends on the size of the block, but with a typical-sized block, you can borrow up to 95% of the value of the land.
The second component is the loan for the construction of the house.
You will be approved for the construction component based on either the bank’s valuation after completion of construction or the cost stipulated in the building contract – whichever is lower.
Once approved, the construction loan is typically “drawn down” in five stages.
The bank will make progress payments to your builder at the end of each stage as you sign off on the invoices and costs the builder provides you.
Your repayments will be interest-only until construction is finished.
The bank will inspect the work regularly to ensure the project matches the agreed-upon building contract.
Once construction is complete, your mortgage will kick in, and you’ll start making principal-and-interest repayments.
Check out the construction loan tips page for more tips and guidance when building a home.
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SIGN UP FOR FREEFor A Turnkey Package
With a turnkey property, the complete cost of the land and build is set out in a standard sale and purchase agreement between you and the builder.
You will typically have to pay a 10% deposit when signing the contract, with the balance being payable after construction.
For the remaining funds to be released to the builder, the house must be fully completed and ready to move into with your state’s equivalent code compliance certificate.
If you have a 5% deposit (and you qualify for a 95% turnkey loan), the bank will normally lend you the additional 5% deposit to make up the 10% deposit required for the builder.
How Does A House And Land Loan Differ From A Construction Loan?
For a construction loan, you first buy vacant land and then find a qualified builder to build your home.
With a house and land package, it is bundled together, i.e. when you purchase the land; you choose from any of the standard or customised home designs instead of waiting for a builder to finalise the designs and build your home.
Other than that, the way progress payments are made is similar.
What Documents Do I Need To Provide?
| Breakdown of client contribution | Amount |
|---|---|
| Building Contract Price | $500,000 |
| Less : Funds available for construction (Total loan approved – Loan used for land settlement) ($800,000 – $300,000)Building Contract Price | $582,500 |
| Total Shortfall/Client Contribution | $82,500 |
| Less: FHOG | $10,000 |
| Remaining Contribution to be paid by Client | $72,500 |
FHOG fund is generally utilized in Base stage. If the construction loan has no shortfall/client contribution, FHOG is deposited into the client’s nominated account. Progess payment schedule
| Stages of construction | Percent % | Progress payment amount | Paid by client | Paid by bank |
|---|---|---|---|---|
| Deposit | 10% | $58,250 | $58,250 | - |
| Base | 10% | $58,250 | $14,250 | $44,000 (Includes $10,000 FHOG Amount) |
| Frame | 30% | $174,750 | - | $174,750 |
| Enclosed | 20% | $116,500 | - | $116,500 |
| Fixing | 20% | $116,500 | - | $116,500 |
| Completion | 10% | $58,250 | - | $58,250 |
| Total Building Contract | 100% | $582,500 | $72,500 | $510,000 |
Note: The progress payment schedule is extracted from the building contract. The deposit that you’ll need for the house and land package can vary, so it’s best to speak with a mortgage broker before you sign the building contract.
Can the First Home Owners Grant help?
The first home owners grant (FHOG) will help you in funding a turnkey project but not for the purchase of vacant land.
The state will only transfer the grant when you make your first payment to the builder.
When you choose a house and land package, the cost of the grant will be paid directly to the lender when the first drawdown is made to the builder.
If the house and land package loan is lodged as one application, it causes significant issues later as the bank will not advance the loan for the land until the builder is ready to start.
This could cause the entire application to fall over, and you might have a stressful experience of resubmitting the application again at the last minute.
Use the FHOG calculator to see if you qualify in your state.
Alternatively, you may also qualify for the federal government’s first home buyer deposit scheme which began from 1 January 2020.
The Benefits And Drawbacks Of Each Type Of Build
Pros And Cons Of House And Land Packages
| Advantages of house and land package | Disadvantages of house and land package |
|---|---|
| Stamp duty is only calculated on the value of the vacant land. First home buyers might be eligible for stamp duty concessions or exemptions. | The final price of a house and land package could be inflated to account for marketing costs and commissions. |
| In most cases, the First Home Owners Grant (FHOG) applies to new builds (although the details vary according to state and territories) | The property is not always located in prominent areas, and some lenders have postcode restrictions. |
| You save on maintenance costs and renovation costs as the home is brand new. | There could be extra costs during construction, so it is best to ask the builder what is included in the quoted price |
| You can customise your home according to how you want it to be. | You have to wait for your home to be built. In the meantime, you might be paying rent and need to make repayments for the loan. |
Pros And Cons Of Turnkey Package
| Advantages of turnkey package | Disadvantages of turnkey package |
|---|---|
| Turnkey homes have a fixed price for the land and construction, so you won't have to pay extra than what is quoted. | You will pay stamp duty on the whole value of the property, but concessions might be available. |
| You don't have to deal with administrative and building councils. | These are more expensive than a typical house and land package. |
| You don't have to make design choices or be in constant communication with the builder. | You don't get customisation choices like in a house and land package. |
Do Banks Have Preferred Builders?
Your builder needs to be licenced and registered with your state’s relevant Master Builders Association.
Other than that, banks don’t have preferred builders.
However, they have been known to ban dodgy builders in the past.
So it’s important to do your due diligence and check that they’re licensed.
Below are developers that banks deal with on a regular basis:
- Metricon Homes
- BGC (Australia)
- Meriton Apartments
- ABN Group
- Brookfield Multiplex
- Simonds group
- Henley Properties
- MJH Group
- Burbank Homes
- GJ Gardner Homes
- Mirvac group
- Porter Davis Homes
- Carlisle Home Pty Ltd
- Hickinbotham Group of Companies
- JWH Group
- Masterton
- Pindan Pty Ltd
- Impact Homes Pty Ltd
- L.U. Simon Builders Pty Ltd
- Beechwood
How To Choose A Builder For Your House And Land Package
When choosing a builder:
- Look for experienced builders.
- You could ask for contacts of their previous customers and find out their experience and if they were happy with the final product.
Ask the builder the following questions:
- How long have you been building?
- How many packaged homes have you sold?
- Do you have an acceptable level of builder’s warranty and insurance?
- What is not included in the fixed price contract?
Golden Tips
- Don’t commit to buy land or build until you are pre-approved.
- Make sure your lender or mortgage broker is experienced with construction loans.
- Make sure that your land contract and building contract has a subject to finance clause or cooling off period just in case the lender’s valuation comes in low or they decline your loan for any other reason.
- Get legal advice from your solicitor before signing a Contract of Sale (land) or a building contract.
- Ask your mortgage broker to calculate your funds to complete (required deposit) for both the land purchase and the construction.
- Have a sufficient deposit because some lenders may require you to use all of your deposit to pay the initial invoices before releasing funds.
- Have funds on standy! Building costs can quickly blow out and a shortfall in the valuation means you’ll need to provide additional funds to cover the cost of the construction or land purchase.
- To minimise cost blow-outs and building delays, make up your mind on design, materials, finishes and fittings before you start building.
- Do you have friends who are in the building industry? Get them to guide you through the process of building.
- You’re trying to get the council, builder and a lender to work together so expect delays and problems!
Apply For A House And Land Package Loan
Our mortgage brokers are experienced with house and land package loans.
Discover if you qualify for a house and land package or a turnkey loan.
Call us on 1300 889 743 or complete our free assessment form today.