How to Finance a House and Land Package

A construction loan for a house and land package works differently to a standard home loan because funds release in stages as your build progresses, not as a single lump sum at settlement.

If you're buying land with plans to build in Maroochydore, understanding how construction finance works before you sign anything will save you confusion later. The loan splits into two parts: one for the land purchase and another for the build itself, with payments tied directly to what your builder completes on site.

The Two-Stage Structure of Land and Construction Finance

You settle on the land first, then construction funding releases progressively as the builder reaches specific milestones. Most lenders require you to commence building within a set period from the disclosure date, typically six to twelve months, so timing matters if you're still finalising council approval or selecting a registered builder.

Consider a buyer purchasing a block near the Maroochydore CBD with plans to build using a project home design. They settle on the land using the first portion of their approved loan amount, then the builder submits a fixed price building contract and progress payment schedule to the lender. Once council plans are approved and the slab goes down, the first construction draw releases directly to the builder. The buyer pays interest only on the amount drawn down at each stage, not the full loan amount.

How the Progressive Drawing Fee and Payment Schedule Work

Lenders charge a progressive drawing fee each time funds release during construction, usually between $150 and $400 per drawdown depending on the lender. A typical progress payment schedule includes four to six stages: base stage, frame stage, lock-up stage, fixing stage, and practical completion. Each stage requires a progress inspection before funds release.

The builder invoices for each completed stage, the lender arranges an independent valuer to confirm the work matches the invoice, then the funds go directly to the builder. You don't handle the money yourself. This protects both you and the lender by ensuring payment aligns with actual progress on site, not just what the builder claims.

What Council Approval and Development Application Mean for Your Timeline

Your construction loan approval is conditional on receiving council approval for your build. If your design requires a development application rather than standard complying development, expect an extra two to four months before construction can start. Lenders won't release construction funds until you provide proof of approved council plans and a signed contract with a registered builder.

In Maroochydore, particularly in newer estates near the Sunshine Coast University Hospital precinct or around the CBD redevelopment zone, some blocks come with design guidelines or covenant restrictions that affect what you can build. Your builder should confirm these before lodging plans, but it's worth checking independently because a rejected development application can delay your build and push you past the lender's commencement deadline.

Interest-Only Repayment Options During Construction

During the construction period, most lenders offer interest-only repayment options so you're not paying principal and interest on the full loan amount before the house is finished. You pay interest only on what's been drawn down. Once construction completes and you move in, the loan converts to a standard principal and interest home loan with full repayments.

If you're renting while building, this structure means you're managing rent plus construction loan interest for several months. In our experience, buyers underestimate this overlap period. A build that runs three months over schedule because of weather delays or supply issues can add thousands in unexpected rental costs, so budget for a buffer.

Fixed Price Contracts and Cost Plus Arrangements

Most lenders will only approve land and build loans against a fixed price building contract, not a cost plus contract. A fixed price contract locks in the total build cost upfront, which gives the lender certainty about the loan amount. A cost plus contract, where you pay the builder's actual costs plus a margin, introduces too much uncertainty for construction funding purposes.

If you're working with a custom design rather than a project home, make sure your builder provides a fixed price contract before you apply for finance. Some builders will quote an estimate during early discussions but won't commit to a fixed price until council approval comes through. That delay can hold up your loan application, so clarify the contract type early.

Choosing Between Construction to Permanent Loan Structures

A construction to permanent loan means you have one loan that covers both the construction phase and the ongoing mortgage once the build finishes. You don't need to reapply or refinance when the house completes. The alternative is a separate construction loan that you then refinance into a standard home loan, but that adds cost and paperwork most buyers don't need.

Momentum Finance Solutions can access construction loan options from banks and lenders across Australia, which matters because not all lenders offer the same construction loan interest rate or fee structure. Some lenders cap the number of progress payments they'll fund, which won't work if your builder uses a seven-stage payment schedule instead of the standard five. Matching the lender to your specific build contract avoids problems later.

What Happens if Your Build Runs Over Budget or Timeline

If your builder encounters unexpected costs during construction, they'll need to request a variation to the fixed price contract. Small variations for client-requested changes are normal, but if the variation pushes your total build cost above your approved loan amount, you'll need to cover the difference yourself or apply for a loan top-up.

Lenders are cautious about top-ups mid-construction because the property is incomplete and difficult to value accurately. If you're considering upgrades or changes during the build, discuss the cost impact with your mortgage broker in Maroochydore before committing, not after the variation is signed.

The Practical Side of Managing Payments to Sub-Contractors

If you're considering owner builder finance, you'll manage the progress payment finance and pay sub-contractors directly rather than working through a head contractor. Most lenders won't fund owner builder projects unless you can demonstrate building experience, and even then, the loan amount is typically capped at a lower percentage of the land and construction value.

For most buyers, working with a registered builder under a fixed price contract is the only realistic path to securing construction finance. The builder handles payments to plumbers, electricians, and other sub-contractors, and the lender releases funds based on the builder's invoice and the progress inspection report.

How Deposit Requirements Differ for House and Land Packages

You'll need a deposit that covers at least 5% to 10% of the combined land and construction cost, though 20% avoids lenders mortgage insurance. The deposit applies to the total project cost, not just the land portion. Some first home buyers assume they only need a deposit for the land and underestimate the upfront cash required.

Along with the deposit, budget for settlement costs on the land purchase, council approval fees, soil tests, and the lender's progress drawing fees. These costs sit outside the loan amount and need to come from your savings.

Call one of our team or book an appointment at a time that works for you to discuss your house and land package and how construction funding fits your situation.

Frequently Asked Questions