Everything You Need to Know About House and Land Packages

House and Land Package Finance Works Differently to Established Property Purchases

House and land packages involve two separate contracts and a staged construction timeline, which changes how your loan is structured and drawn down. You'll typically settle on the land first with an initial loan amount, then draw down construction funds progressively as the build reaches specific milestones. Most lenders require interest-only repayments during construction, switching to principal and interest once the build completes and you take possession.

Midwives working shift patterns often find the extended settlement timeline helpful. You're not managing rental costs and a mortgage simultaneously during the build period, and the staged approach means you can prepare financially over 12 to 18 months rather than finding all your funds at once.

The Land Settlement Happens First

You'll need your deposit ready for land settlement, which typically occurs within 60 to 90 days of signing the contract. At this stage, you're borrowing only for the land component, not the full package price. The construction loan remains undrawn until your builder starts work and reaches the first progress claim.

Consider a midwife purchasing a house and land package where the land costs $250,000 and the build costs $450,000. With a 10% deposit on the total package price of $700,000, you'd provide $70,000 upfront. At land settlement, the lender advances $180,000 to cover the balance of the land. Your repayments at this point are interest-only on $180,000, not the full $630,000 loan amount. As the builder completes each stage and submits progress claims, the lender releases additional funds and your interest charges increase accordingly.

How Construction Drawdowns Work in Practice

Builders typically invoice at five or six stages: base stage (slab or footings), frame stage, lock-up stage (roof and external walls complete), fixing stage (internal fit-out), and practical completion. Your lender will require a quantity surveyor or building inspector to verify each stage before releasing funds. This protects you and the lender from paying for incomplete work.

Interest-only repayments during construction keep your cash flow manageable while you're still paying for your current accommodation. Once the build reaches practical completion and you receive your occupancy certificate, the loan converts to principal and interest repayments on the full amount borrowed. This is when your standard loan term begins, whether you've chosen a variable rate, fixed rate, or split loan structure.

Pre-Approval Needs to Account for Both Contracts

When you apply for home loan pre-approval on a house and land package, the lender assesses both the land contract and the building contract. They'll want to see detailed costings, council approvals, and evidence that the builder is registered and insured. The valuation happens in two stages as well: the lender values the land at settlement, then commissions an 'as if complete' valuation based on the plans and specifications before approving the construction loan.

Midwives with irregular rosters or recent pay increases should provide payslips covering at least three months to demonstrate consistent income. If you're working agency shifts or across multiple facilities, consolidate your income evidence early in the process. Lenders treating midwifery income favourably will often accept a shorter history if you're a registered professional with stable employment, but the documentation still needs to be clear.

Loan to Value Ratio Applies to the Combined Package Price

Your LVR is calculated on the total purchase price, not just the land component. If you're buying a $700,000 package with a $70,000 deposit, your LVR is 90%. At this level, you'd typically pay Lenders Mortgage Insurance unless you're eligible for an LMI waiver through a profession-specific lending policy.

Some lenders cap their LVR on house and land packages at 90% or require a larger deposit for construction lending. Others apply standard LVR limits but scrutinise the builder's credentials more closely. Midwives accessing profession-specific lending may find LMI waived at 90% LVR on both established properties and house and land packages, depending on the lender's current policy settings.

Fixed or Variable Rate During Construction

You can lock in a fixed interest rate at land settlement, but it starts applying immediately even though you're only borrowing the land component at that stage. As construction funds draw down, each progressive advance is added to your fixed rate balance. This can work in your favour if rates are rising, but it also means you're paying a fixed rate on funds you haven't yet drawn.

The alternative is to keep the loan on a variable interest rate during construction, then lock in a fixed rate once the build completes and you know your final loan amount. This gives you certainty about your ongoing repayments without committing to a rate on funds you're not yet using. A split loan structure can also work, fixing part of the loan and leaving part variable to retain access to offset features or additional repayment flexibility.

Builder and Contract Requirements Vary by Lender

Lenders maintain approved builder lists or set minimum registration requirements. Some will only lend against builders with Home Owners Warranty insurance and a demonstrated track record. Others assess builders case by case, particularly for smaller or regional builders not on their approved panel.

If you're buying a house and land package from a volume builder operating across multiple states, most lenders will have them on their approved list. If you're engaging a custom builder or purchasing through a smaller developer, check with your broker early in the process. You may need to provide additional information about the builder's insurance, financial position, and completed projects. In some cases, lenders will decline the application outright if the builder doesn't meet their criteria, regardless of your financial position.

What Happens If Construction Is Delayed

Construction timelines have extended across most regions due to labour shortages and supply chain disruptions. Your lender won't penalise you for delays outside your control, but you'll continue paying interest-only on the drawn amount until the build completes. If your fixed rate expires before practical completion, you may need to refix or revert to the lender's variable rate.

If delays are significant and extend beyond 12 months from the original completion date, some lenders will reassess the loan to ensure your financial circumstances haven't changed. This is more of an administrative check than a full reapplication, but it does mean you need to maintain stable employment and avoid taking on additional debt during the construction period.

Offset Accounts and Construction Loans

Most lenders don't offer a linked offset account on the construction loan portion until the build completes and the loan converts to a standard home loan product. You're making interest-only repayments on a progressively increasing balance, so there's no principal component to offset. Once construction finishes and you move to principal and interest repayments, you can link an offset account if your loan product includes that feature.

If you're accumulating savings during the construction period, consider whether you'd benefit from a loan structure that allows offset from day one. Some lenders offer this on their premium variable rate products, though it may come with a slightly higher interest rate than a basic construction loan without offset.

The Switch to Principal and Interest Repayments

Your repayments will increase substantially once construction completes. During the build, you might be paying $1,200 per month in interest on $180,000. Once the full $630,000 is drawn and you switch to principal and interest, that could jump to $4,200 per month depending on the interest rate at the time.

This is where budgeting during the construction phase matters. The interest-only period gives you breathing room, but it's also an opportunity to build a buffer for when your full repayments begin. Midwives picking up additional shifts during construction can use that income to build savings in an offset account ready for when the loan converts, reducing the immediate impact of higher repayments.

Call one of our team or book an appointment at a time that works for you. We'll assess your income structure, identify lenders with favourable policies for midwives, and structure your construction loan to suit your circumstances and the specific package you're purchasing.

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