Do You Know House and Land Packages Need Different Loans?

House and land packages require construction finance, not a standard home loan.

When you purchase a house and land package in Bacchus Marsh, you are buying vacant land and entering a building contract at the same time. The loan settles in stages: once when you purchase the land, and again in progress payments as the builder completes each phase of construction. This differs from buying an established property, where the loan settles in full on one day. Most lenders treat house and land packages as construction loans, which means additional documentation, valuation processes, and separate approval for both the land and the build.

Why Bacchus Marsh Attracts First Home Buyers to House and Land

Bacchus Marsh sits roughly 50 kilometres west of Melbourne's CBD and has seen steady growth in new estates over the past decade. The combination of larger block sizes, modern builds, and relative affordability compared to metro Melbourne makes it a practical option for buyers entering the market. New estates in areas such as Pentland Hills and Darley offer house and land packages that qualify for the Victorian First Home Owner Grant of $10,000, provided the total package value does not exceed $750,000. That grant, combined with stamp duty concessions up to the same threshold, can reduce upfront costs significantly for eligible buyers.

Regional First Home Buyer Guarantee and LMI Waivers

Bacchus Marsh is classified as regional Victoria under the expanded First Home Guarantee scheme, which was broadened significantly from October 2025. This allows first home buyers to purchase with a 5% deposit without paying Lenders Mortgage Insurance, provided they meet standard eligibility criteria. For a house and land package valued at $600,000, a 5% deposit would be $30,000, compared to the $120,000 typically required for a 20% deposit. The federal government guarantees the shortfall, which means the lender does not charge LMI. This can save between $15,000 and $25,000 depending on the package price and lender.

Consider a buyer purchasing a $580,000 house and land package in Darley. With a 5% deposit of $29,000 and access to the Regional First Home Buyer Guarantee, the buyer avoids LMI and pays no stamp duty due to Victoria's concession. The $10,000 FHOG can be applied to closing costs or retained as a buffer. Without the guarantee, that same buyer would need a 20% deposit or face LMI costs that exceed $20,000.

Fixed or Variable Rate for a Construction Loan

Most lenders offer variable rates during the construction phase and allow you to lock in a fixed rate once the build is complete and the loan converts to principal and interest repayments. During construction, you typically pay interest only on the amount drawn down, which increases with each progress payment. Once construction is finished and you take possession, the loan converts to a standard home loan structure, and you can choose between fixed, variable, or a split rate depending on your circumstances.

Some lenders allow you to fix the rate on the land portion at settlement and keep the construction portion on a variable rate until completion. This can provide partial certainty during the build but limits flexibility if rates fall. Variable rates during construction also mean you can make extra repayments without penalty, which can reduce the interest accrued before the loan converts. Speak with your broker about which structure aligns with your repayment capacity and risk tolerance.

How the Application Differs from an Established Property Purchase

When you apply for finance on a house and land package, the lender assesses both the land value and the building contract. The bank will order a valuation based on the completed property, known as an "as if complete" valuation, which estimates what the finished home will be worth once construction is done. If the valuation comes in lower than the contract price, the lender will only approve a loan amount based on the lower figure, which can leave you short unless you increase your deposit.

You will also need to provide the full building contract, council-approved plans, and evidence that the builder is registered and holds appropriate insurance. In Victoria, builders must be registered with the Victorian Building Authority, and contracts over a certain value require domestic building insurance. Lenders will not approve the loan without confirmation of these details. The approval process generally takes longer than for an established home because of the additional documentation and the two-stage settlement structure.

Timing the Land Settlement and Build Commencement

Once your loan is approved, the land portion settles first. You become the owner of the vacant block, and the builder will typically commence construction within a set timeframe outlined in the contract, often 6 to 12 months depending on council permits and site preparation. During this period, you are liable for council rates on the land, and your loan begins accruing interest on the land component even though the house has not been built yet. Some buyers underestimate this holding cost.

Progress payments are made to the builder at defined stages, such as slab down, frame up, lock-up, fixing, and completion. Each payment triggers a drawdown from your loan, and interest accrues on the total amount drawn. The exact stages and percentages vary by builder and contract, but a typical structure might involve five payments across a build period of six to nine months. Your lender will require an inspection report from a qualified building inspector or valuer before releasing funds at each stage.

Offset Accounts and Redraw During Construction

Most construction loans do not offer full offset account functionality during the build phase because you are only paying interest on the drawn portion of the loan. Some lenders provide limited redraw or partial offset, but the features are usually restricted until the loan converts to principal and interest repayments. Once construction is complete, you can link an offset account to reduce the interest charged on the outstanding balance, provided your loan product supports it.

If cash flow management during construction is a priority, confirm with your lender whether redraw is available on the land component or if early repayments are permitted. This can help reduce the interest burden before the home is finished, particularly if you receive a bonus, tax refund, or other lump sum during the build.

What Happens if the Build is Delayed or the Builder Fails

Construction timelines can extend due to weather, supply shortages, or permit delays. If the build takes longer than expected, you continue paying interest on the drawn amount without the benefit of living in the property. This can strain your budget, particularly if you are also paying rent elsewhere. Most fixed-price building contracts include timeframes and penalty clauses, but enforcement can be difficult if the delay is deemed outside the builder's control.

If a builder becomes insolvent or fails to complete the project, domestic building insurance is designed to cover the cost of completion, provided the contract and insurance were correctly arranged. Lenders will not release progress payments without evidence of valid insurance. If you suspect issues with your builder, contact your lender and broker immediately to understand your options and avoid further drawdowns until the matter is resolved.

Stamp Duty Concessions and First Home Owner Grants in Victoria

Victoria offers a full stamp duty exemption on properties valued up to $600,000 for eligible first home buyers, with a tapered concession available up to $750,000. For a house and land package valued at $650,000, the concession can reduce duty by several thousand dollars compared to the standard rate. The $10,000 First Home Owner Grant applies to new homes, including house and land packages, provided the total value does not exceed $750,000 and you meet residency and occupancy requirements.

These concessions can be stacked with the federal First Home Guarantee, which means you can access a 5% deposit loan, avoid LMI, pay reduced or no stamp duty, and receive a $10,000 grant simultaneously. The combination significantly lowers the cash required at settlement. To confirm eligibility and calculate exact concession amounts, the State Revenue Office Victoria provides an online calculator, or your broker can run the figures during your home loan application.

Budgeting for Settlement Costs Beyond the Deposit

In addition to your deposit, you will need to cover conveyancing fees, building and pest inspections on the land, loan establishment fees, and any upfront lender charges. For house and land packages, you may also face soil testing costs, connection fees for utilities, and council contributions for new estates. These costs can add several thousand dollars to your upfront outlay, so factor them into your first home buyer budget before committing to a contract.

Some buyers use the First Home Owner Grant to cover a portion of these costs, while others save separately or negotiate with the developer for incentives such as upgraded flooring, appliances, or rebates on certain finishes. Confirm all inclusions and exclusions in the building contract before signing, as variations and upgrades requested during construction can blow out the budget quickly.

Call one of our team or book an appointment at a time that works for you to discuss your house and land finance options in Bacchus Marsh and ensure your loan structure aligns with your build timeline and repayment goals.

Frequently Asked Questions