Beginner's Guide to House and Land Packages

House and land packages deliver a new home without the complexity of managing separate title transfers or builder contracts yourself.

The structure is straightforward: you sign one contract with a developer who sells you the land and builds the home under a single fixed price. The deposit typically splits into two parts, one portion paid at contract signing for the land component, and the balance when construction begins. Finance approval follows the same split, with land settlement occurring first and construction drawdown happening in stages as the builder reaches milestones. For Victorian first home buyers, this structure unlocks the full $10,000 First Home Owner Grant, full stamp duty exemption on properties up to $600,000, and access to the Australian Government 5% Deposit Scheme with a property price cap of $950,000 in Melbourne.

How the Deposit Structure Works Across Two Settlements

You will pay a deposit twice. At contract signing, typically 5% to 10% of the land value is required. When construction begins months later, another deposit equal to 5% to 10% of the build cost is due. The lender treats these as two separate transactions even though your contract is one document.

Consider a buyer who purchases a package where the land component is valued separately from the build. If the land portion requires a 10% deposit and the build portion requires a 5% deposit, your upfront savings need to cover both, plus stamp duty on the land if the total property value exceeds $600,000, plus legal and inspection costs. If using the 5% Deposit Scheme, the deposit can be lower, but the timing remains the same. Land settlement happens first, then construction finance is drawn progressively.

Victorian Stamp Duty Exemptions and the $10,000 Grant

Full stamp duty exemption applies to properties up to $600,000. Between $600,001 and $750,000, a sliding concession reduces the duty payable. Above $750,000, standard rates apply. The $10,000 First Home Owner Grant applies only to new homes valued up to $750,000 and does not apply to established properties.

For a house and land package valued at $580,000, no stamp duty is payable and the $10,000 grant can be used to reduce the deposit required at land settlement or kept aside for construction costs. For a package valued at $680,000, partial stamp duty applies but the grant still reduces the net upfront cost. The concession phases out entirely at $750,000, and above that threshold, neither the grant nor the exemption apply. Every dollar counts when structuring your deposit, and the difference between a $749,000 package and a $751,000 package can mean thousands in duty.

Using the 5% Deposit Scheme Without Paying Lenders Mortgage Insurance

The Australian Government 5% Deposit Scheme allows eligible buyers to purchase with a 5% deposit without paying lenders mortgage insurance. Housing Australia guarantees the gap between your deposit and 20% equity. No income cap applies, and no annual place limits restrict access. Applications are made through one of 31 participating lenders, including three major banks and 28 non-major institutions.

The property price cap in Melbourne is $950,000. Regional Victorian caps also apply and were increased from October 2025. The scheme applies to house and land packages because the property is classified as new. The guarantee covers the land and build value combined. Once construction is complete and the property is revalued, the lender may reassess the loan, but the guarantee remains in place for the life of the loan provided you meet ongoing eligibility requirements.

How Construction Finance is Drawn in Stages

Construction loans release funds progressively as the build reaches defined milestones. Typically, five to six progress payments are made: base stage, frame stage, lock-up stage, fixing stage, and completion. The lender arranges an inspection at each stage before releasing the next drawdown to the builder.

You pay interest only on the amount drawn, not the full loan. During construction, most lenders offer interest-only repayments on the drawn portion. Once the build is complete and you take possession, the loan converts to principal and interest repayments unless you negotiate otherwise. If construction takes six months, your repayments during that period are lower than they will be once you move in. Budget accordingly, because the jump from paying interest on $200,000 to paying principal and interest on $600,000 is significant.

Some lenders charge a higher interest rate during construction or apply establishment fees to both the land and construction loan components. Comparing home loan options across lenders before signing the package contract can reduce costs by several thousand dollars over the construction period alone.

Pre-Approval and Timing the Contract

Secure pre-approval before signing the package contract. Developers typically allow a cooling-off period, but finance clauses in house and land contracts are less flexible than in established property sales. If your finance falls through after the cooling-off period ends, you risk losing your deposit.

Pre-approval confirms your borrowing capacity and flags any issues with your savings, employment, or credit file before you commit. Lenders assess your ability to service the full loan amount at completion, not just the land portion. If your income or employment changes between land settlement and construction drawdown, the lender may reassess and withdraw the construction funding. Lock in your approval early and avoid changing jobs or taking on new credit until both settlements are complete.

Offset Accounts and Redraw During Construction

Most construction loans do not offer offset accounts during the build phase. Some lenders allow redraw on any extra repayments made during construction, but others quarantine those funds until completion. If you plan to use an offset account to reduce interest, confirm whether that facility is available from day one or only after the final drawdown.

Once construction is complete and the loan converts to a standard variable or fixed product, offset accounts become available depending on the loan product chosen. An offset account linked to a variable rate loan reduces the interest charged daily based on the balance held in the account. For buyers who receive the $10,000 grant after settlement and want to reduce interest immediately, an offset account delivers more value than keeping the funds in a separate savings account earning minimal interest.

Fixed Versus Variable Rates for New Builds

During construction, most lenders charge a variable rate on the progressive drawdowns. Once the build is complete, you can choose to fix all or part of the loan. Fixing provides certainty over repayments for a set period, typically one to five years. Variable rates allow full access to offset and redraw features and avoid break costs if you want to pay down the loan faster or refinance.

Some buyers split the loan, fixing a portion for repayment certainty and leaving the balance variable to retain flexibility. If you expect your income to increase or plan to make lump sum repayments from bonuses or savings, a variable rate or split structure may deliver more value than fixing the entire amount. The choice depends on your risk tolerance and cash flow, not on predicting future rate movements.

What Happens If the Build is Delayed

Construction delays extend the period you pay interest without living in the property. If the builder misses milestones, your interest costs increase and your move-in date shifts. Most package contracts include a build timeframe, but weather, supply issues, and labour shortages can push completion out by months.

Your lender will continue to charge interest on the drawn amount regardless of delays. If you are paying rent while waiting for the build to finish, a three-month delay can mean an additional three months of dual accommodation costs. Some contracts include penalty clauses for late completion, but enforcement varies. Before signing, review the build timeline and ask the developer about their average completion timeframe for similar projects. Optimistic timelines cost you money if they are not met.

If your loan pre-approval expires before construction is complete, you will need to reapply. Most pre-approvals are valid for three to six months. If the build runs over, the lender reassesses your financial position, and any changes to your income, employment, or credit file may affect the final approval. Keep your financial position stable throughout the entire process, from contract signing to final settlement.

The structure of house and land finance is not inherently complex, but the timing and the need to fund two settlements with progressive drawdowns in between requires more coordination than purchasing an established home. The financial reward is access to grants and concessions that established properties do not attract, plus a new build with depreciation benefits if you later convert the property to an investment.

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